Time to look at the Euro Zone again (and I'm afraid this isn't optimistic):
There's Only One Way Forward For Europe, And This Isn’t It - Business Insider: "The only way forward for the EU and the Eurozone is to let the weaker members (think PIIGS) leave, and to let them do that with grace, respect and dignity. Anything else is not just doomed to fail, it's doomed to incite violence. Europe has a long history, and it doesn't take much to evoke lots of that, any and all of that. . . . The EU must, make that capital MUST, not just allow, but facilitate for its weaker members to leave the eurozone. If it doesn't do that, it calls upon itself the wrath of the gods (Europe has lots of those)."
But here's the problem (and it is a killer problem):
"As per Draghi and Merkel and Monti et al., they have no plans for that kind of facilitating. Not because they like the Greeks so much, but because their banks would need to - at least partially - come clean; derivatives, don't you know. And those banks are far worse off and much more broke than anyone has been allowed to know. Unless a sufficiently large number of us wake up in time, as in right now, people will be shot to death in the streets of Athens and Barcelona just so the banks can continue to hide their losses. Is that the kind of world you want to live in? . . ." Read more: http://theautomaticearth.com/Finance/theres-only-one-way-forward-for-europe-and-this-isnt-it.html#ixzz27oyESgUs
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Showing posts with label Eurozone. Show all posts
Showing posts with label Eurozone. Show all posts
Saturday, October 13, 2012
Sunday, June 17, 2012
Europeans Dig Themselves Deeper
The Greeks vote today, and yet nobody in Europe wants to face the truth and do the right thing:
Hussman Funds - Weekly Market Comment: The Heart of the Matter - June 11, 2012: " . . . what is really happening is that a continent that is already excessively in debt is promising funds so that Spain can increase its government debt, and then needlessly protect the bondholders of Spanish banks, who should be subject to orderly restructuring instead. . . . The only way Spain could make a more explicit gift to bank bondholders would be to include wrapping paper and a bow. If it seems as if the global economy has learned nothing, it is because evidently the global economy has learned nothing. The right thing to do, again, is to take receivership of insolvent banks and wipe out the stock and subordinated debt, using the borrowed funds to protect depositors in the event that the losses run deep enough to eat through the intervening layers of liabilities (which is doubtful) . . . "
At some point, something's got to give--until then, caveat emptor.
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Hussman Funds - Weekly Market Comment: The Heart of the Matter - June 11, 2012: " . . . what is really happening is that a continent that is already excessively in debt is promising funds so that Spain can increase its government debt, and then needlessly protect the bondholders of Spanish banks, who should be subject to orderly restructuring instead. . . . The only way Spain could make a more explicit gift to bank bondholders would be to include wrapping paper and a bow. If it seems as if the global economy has learned nothing, it is because evidently the global economy has learned nothing. The right thing to do, again, is to take receivership of insolvent banks and wipe out the stock and subordinated debt, using the borrowed funds to protect depositors in the event that the losses run deep enough to eat through the intervening layers of liabilities (which is doubtful) . . . "
At some point, something's got to give--until then, caveat emptor.
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Monday, May 28, 2012
An Exit Strategy for Greece et al
Everyone in the Eurozone is wringing their hands about Greece and its possible exit from the euro (Eurozone). Here's an exit plan to which one could say, "the devil is in the details," but this looks like an "elegant" strategy--
Mosler/Pilkington: A Credible Eurozone Exit Plan – Smart Taxes Network: "So, we contend that the periphery governments should have a credible exit strategy on hand and it is to this that we now turn. Such a strategy would not be very hard to implement and would consist of two key principles: 1. Upon announcing that the country is leaving the Eurozone, the government of that country would announce that it would be making payments – to government employees etc. – exclusively in the new currency. Thus the government would stop using the euro as a means of payment. 2. The government would also announce that it would only accept payments of tax in this new currency. This would ensure that the currency was valuable and, at least for a while, in very short supply. And that is pretty much it. The government spends to provision itself and thereby injects the new currency into the economy while their new taxation policy ensures that it is sought after by economic agents and, thus, valuable. Government spending is thus the spigot through which the government injects the new currency into the economy and taxation is the drain that ensures citizens seek out the new currency."
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Mosler/Pilkington: A Credible Eurozone Exit Plan – Smart Taxes Network: "So, we contend that the periphery governments should have a credible exit strategy on hand and it is to this that we now turn. Such a strategy would not be very hard to implement and would consist of two key principles: 1. Upon announcing that the country is leaving the Eurozone, the government of that country would announce that it would be making payments – to government employees etc. – exclusively in the new currency. Thus the government would stop using the euro as a means of payment. 2. The government would also announce that it would only accept payments of tax in this new currency. This would ensure that the currency was valuable and, at least for a while, in very short supply. And that is pretty much it. The government spends to provision itself and thereby injects the new currency into the economy while their new taxation policy ensures that it is sought after by economic agents and, thus, valuable. Government spending is thus the spigot through which the government injects the new currency into the economy and taxation is the drain that ensures citizens seek out the new currency."
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Wednesday, May 16, 2012
Greece and the Eurozone: Voting with your Money
June 17th is the date for new Greek elections but it looks like the Greek people are already voting (with their money):
Greek politics: Slouching towards the drachma | The Economist: "Today, cash was being taken away from the banks in orderly fashion. There were no queues outside branches in central Athens or its suburbs. Customers ordered cash by telephone and picked it up 24 hours later. Some went straight into safety-deposit boxes at the same bank; some was stashed beneath mattresses in case Greece has to re-adopt the drachma. "People are taking preventive measures," says one veteran banker. "If you own a pile of euros, you’ll feel rich in a drachma environment." Despite their enthusiasm for holding on to the euro, Greeks are fed up with the austerity that German politicians say is the price of continued membership. . ."
Paul Krugman: Jogging for the Exit "What’s happening now is a “bank jog” — Greeks are pulling euro deposits out of banks fairly rapidly, but not quite fast enough to be called a bank run. But where are the euros coming from? Basically, banks are borrowing them from the Greek central bank, which in turn must borrow them from the European Central Bank. The question then becomes how far the ECB is willing to go here; is it willing, in effect, to lend enough money to buy up the entire balance sheet of the Greek banking sector, given the likelihood that this sector will be left insolvent by Greek default? Yet if the ECB says no more, Greek banks stop operating — and it’s hard to see how they can be restored to operation except by ditching the euro and using something else. And if that happens, surely depositors in other European countries will start their own bank jogs …"
Question: If you owned a pile of euros, wouldn't you be better off converting them to pound sterling or U.S. dollars?
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Greek politics: Slouching towards the drachma | The Economist: "Today, cash was being taken away from the banks in orderly fashion. There were no queues outside branches in central Athens or its suburbs. Customers ordered cash by telephone and picked it up 24 hours later. Some went straight into safety-deposit boxes at the same bank; some was stashed beneath mattresses in case Greece has to re-adopt the drachma. "People are taking preventive measures," says one veteran banker. "If you own a pile of euros, you’ll feel rich in a drachma environment." Despite their enthusiasm for holding on to the euro, Greeks are fed up with the austerity that German politicians say is the price of continued membership. . ."
Paul Krugman: Jogging for the Exit "What’s happening now is a “bank jog” — Greeks are pulling euro deposits out of banks fairly rapidly, but not quite fast enough to be called a bank run. But where are the euros coming from? Basically, banks are borrowing them from the Greek central bank, which in turn must borrow them from the European Central Bank. The question then becomes how far the ECB is willing to go here; is it willing, in effect, to lend enough money to buy up the entire balance sheet of the Greek banking sector, given the likelihood that this sector will be left insolvent by Greek default? Yet if the ECB says no more, Greek banks stop operating — and it’s hard to see how they can be restored to operation except by ditching the euro and using something else. And if that happens, surely depositors in other European countries will start their own bank jogs …"
Question: If you owned a pile of euros, wouldn't you be better off converting them to pound sterling or U.S. dollars?
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Tuesday, May 15, 2012
The Greek Drachma Cometh--are the Fed and U.S. Treasury ready?
The Greeks (and who can blame them?) have had enough already with Eurozone "austerity" which, afterall, was a cruel "hoax" (zero chance of success) the Eurozone imposed on Greece in order to "save" French and German banks, and now the endgame is playing out--
Brace, brace. Dark times ahead as Greece heads for the exit - Telegraph: " . . . If Greece redominates all its debts in cut price drachmas, the ECB and its backers – in particular the German Bundesbank – will take a terrible hit, but it won't be terminal. The Bundesbank would most likely simply write off its Target 2 lending to Greece, which would certainly be a major curiosity given its abhorrence of debt monetisation but wouldn't of itself destroy either the Bundesbank or the euro. The threat comes instead from market contagion to other eurozone countries worst hit by the debt crisis. To Germany, Greece has always been a special case, a nation which cheated its way into the euro, whose citizens are lazy and won't pay their taxes, and is in any case basically ungovernable. There is a very different attitude to Spain and Italy. Germany's determination to make the rest of the eurozone work should not be underestimated. . . ."
As the Telegraph points out, once Greece leaves the euro, the Germans will begin to realize the euro could all come down (as a flawed currency, it probably will inevitably) and focus diligently on (and be preoccupied with) Spain and Italy--but what about Greece? Greece may be small but its membership in NATO and its strategic location make it too important to be left adrift--Bernanke and Geithner better be ready to step into the breach and extend Greece a "helping hand."
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Brace, brace. Dark times ahead as Greece heads for the exit - Telegraph: " . . . If Greece redominates all its debts in cut price drachmas, the ECB and its backers – in particular the German Bundesbank – will take a terrible hit, but it won't be terminal. The Bundesbank would most likely simply write off its Target 2 lending to Greece, which would certainly be a major curiosity given its abhorrence of debt monetisation but wouldn't of itself destroy either the Bundesbank or the euro. The threat comes instead from market contagion to other eurozone countries worst hit by the debt crisis. To Germany, Greece has always been a special case, a nation which cheated its way into the euro, whose citizens are lazy and won't pay their taxes, and is in any case basically ungovernable. There is a very different attitude to Spain and Italy. Germany's determination to make the rest of the eurozone work should not be underestimated. . . ."
As the Telegraph points out, once Greece leaves the euro, the Germans will begin to realize the euro could all come down (as a flawed currency, it probably will inevitably) and focus diligently on (and be preoccupied with) Spain and Italy--but what about Greece? Greece may be small but its membership in NATO and its strategic location make it too important to be left adrift--Bernanke and Geithner better be ready to step into the breach and extend Greece a "helping hand."
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Wednesday, April 4, 2012
The Eurozone Disease
The biggest failure of the Obama Presidency? Without a doubt his failure to address the fiscal crisis facing the United States. Instead of providing leadership after the report and recommendations of his own appointed Presidential Commission (Simpson-Bowles)--he did nothing. Failure to lead, failure to act, that is his undeniable legacy on this issue. So where does this leave us? Completely vulnerable to "catching" the "Eurozone disease"--
Agenda | Irwin Stelzer: Euro-Zone Shark Still Has Its Appetite - WSJ.com: "Bankrupt Greece; junk-rated Portugal pleading with Angola for inbound investment; jobless Spain, facing some interest rates that have doubled in the past month; and recovering Ireland have already fallen to the bond vigilantes. Growth-free Italy is fighting a rearguard action, facing unsustainable interest rates despite the stellar reputation of its newly appointed technocrat prime minister, Mario Monti; Belgian debt, now equal to its GDP, has been downgraded, in part because of the inability of this seat of the EU to form a new government. France, consumer confidence dropping, is likely next. . . . The failure of the supercommittee to find some trivial deficit reductions means America might also slip into the ungovernable category. And the Federal Reserve Board is imposing new stress tests to determine whether leading banks can withstand a wave of sovereign- debt and bank defaults in Europe. Pulitzer Prize-winning columnist Charles Krauthammer is not alone in arguing that the euro-zone disease, unless cured, might well turn slow growth in the U.S. into recession, and scupper any chance President Barack Obama has of avoiding a forced return to Chicago in 2013. Which is why Mr. Obama will do more than present German Chancellor Angela Merkel with the Presidential Medal of Freedom when she arrives in Washington Monday evening. He and Treasury Secretary Tim Geithner hope to persuade her to stem the rot. Whether she is prepared to take advice from the team that has driven American deficits and debt to such levels that their nation's debt has been downgraded while Germany's remains triple-A is uncertain. . . . "
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Agenda | Irwin Stelzer: Euro-Zone Shark Still Has Its Appetite - WSJ.com: "Bankrupt Greece; junk-rated Portugal pleading with Angola for inbound investment; jobless Spain, facing some interest rates that have doubled in the past month; and recovering Ireland have already fallen to the bond vigilantes. Growth-free Italy is fighting a rearguard action, facing unsustainable interest rates despite the stellar reputation of its newly appointed technocrat prime minister, Mario Monti; Belgian debt, now equal to its GDP, has been downgraded, in part because of the inability of this seat of the EU to form a new government. France, consumer confidence dropping, is likely next. . . . The failure of the supercommittee to find some trivial deficit reductions means America might also slip into the ungovernable category. And the Federal Reserve Board is imposing new stress tests to determine whether leading banks can withstand a wave of sovereign- debt and bank defaults in Europe. Pulitzer Prize-winning columnist Charles Krauthammer is not alone in arguing that the euro-zone disease, unless cured, might well turn slow growth in the U.S. into recession, and scupper any chance President Barack Obama has of avoiding a forced return to Chicago in 2013. Which is why Mr. Obama will do more than present German Chancellor Angela Merkel with the Presidential Medal of Freedom when she arrives in Washington Monday evening. He and Treasury Secretary Tim Geithner hope to persuade her to stem the rot. Whether she is prepared to take advice from the team that has driven American deficits and debt to such levels that their nation's debt has been downgraded while Germany's remains triple-A is uncertain. . . . "
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Saturday, March 10, 2012
In Greece Nothing Succeeds Like Failure
OK, Greece had an "orderly default." Problem solved? Hardly--
Greece succeeds in bond deal but not in solving debts - Telegraph: "Experts warned the deal had failed to address Greece's crippling debt problem. Instead, by imposing heavy losses on Greek banks and pension funds, it may have destablised the country even more. Raoul Ruparel of Open Europe said: "The debt relief for Greece is far too small which means another default could be around the corner, while the austerity targets are . . . unrealistic and will kill off growth prospects." The eurogroup of 17 finance ministers held a conference call but said they would not decide whether to release Greece's €130bn bail-out until a meeting on Monday. The restructuring will write down Greece's debt by €105.4bn, is €2bn short of the target set by its international paymasters. . . ."
Next Time, Greece May Need New Tactics By Landon Thomas Jr. London--NYTimes.com: "The Greek government was able to legally strong-arm most of its private bondholders into accepting the debt reduction deal it completed Friday. But next time — and experts predict there will almost certainly be a next time — Greece might have much less leverage. That’s because as a result of Friday’s deal, the bulk of Athens’s 260.2 billion euros ($341 billion) in remaining government debt will now be held by the International Monetary Fund, the European Central Bank and the individual European nations that have lent Greece money and contributed to the region’s bailout fund. Politically, Greece would be hard-pressed to force debt losses on such a formidable international group, the way it did with the private banks and hedge funds that have just been forced to accept a 75 percent loss on their Greek bond holdings. . . .“From now on, whatever happens in Greece, it will be a matter between Greece and the taxpayers of the rest of the euro area,” said Jacob F. Kirkegaard, an analyst at the Peterson Institute for International Economics in Washington. . . . Greece, in essence, has become a financial ward of Europe. . . even after the new relief, Greece is still expected to be saddled with a ratio of debt to gross domestic product of 151 percent in 2012, and 149 percent in 2013. These debt levels remain the highest in Europe. The Greek economy remains in a wretched state — it shrank by 7.5 percent in the fourth quarter. And youth unemployment, at 51 percent, is now officially the highest in Europe. . . . for Greece, the drawback of owing so much money to Europe and the I.M.F., even at lower interest rates and longer maturities, is that the obligation will always be there. “Greece is staring at decades of interest payments to the official sector,” said Adam Lerrick, a sovereign debt expert at the American Enterprise Institute. “They traded their ability to write down debt to private sector creditors for low-interest-rate official sector loans that cannot be reduced.”"
Greece succeeds in bond deal but not in solving debts - Telegraph: "Experts warned the deal had failed to address Greece's crippling debt problem. Instead, by imposing heavy losses on Greek banks and pension funds, it may have destablised the country even more. Raoul Ruparel of Open Europe said: "The debt relief for Greece is far too small which means another default could be around the corner, while the austerity targets are . . . unrealistic and will kill off growth prospects." The eurogroup of 17 finance ministers held a conference call but said they would not decide whether to release Greece's €130bn bail-out until a meeting on Monday. The restructuring will write down Greece's debt by €105.4bn, is €2bn short of the target set by its international paymasters. . . ."
Next Time, Greece May Need New Tactics By Landon Thomas Jr. London--NYTimes.com: "The Greek government was able to legally strong-arm most of its private bondholders into accepting the debt reduction deal it completed Friday. But next time — and experts predict there will almost certainly be a next time — Greece might have much less leverage. That’s because as a result of Friday’s deal, the bulk of Athens’s 260.2 billion euros ($341 billion) in remaining government debt will now be held by the International Monetary Fund, the European Central Bank and the individual European nations that have lent Greece money and contributed to the region’s bailout fund. Politically, Greece would be hard-pressed to force debt losses on such a formidable international group, the way it did with the private banks and hedge funds that have just been forced to accept a 75 percent loss on their Greek bond holdings. . . .“From now on, whatever happens in Greece, it will be a matter between Greece and the taxpayers of the rest of the euro area,” said Jacob F. Kirkegaard, an analyst at the Peterson Institute for International Economics in Washington. . . . Greece, in essence, has become a financial ward of Europe. . . even after the new relief, Greece is still expected to be saddled with a ratio of debt to gross domestic product of 151 percent in 2012, and 149 percent in 2013. These debt levels remain the highest in Europe. The Greek economy remains in a wretched state — it shrank by 7.5 percent in the fourth quarter. And youth unemployment, at 51 percent, is now officially the highest in Europe. . . . for Greece, the drawback of owing so much money to Europe and the I.M.F., even at lower interest rates and longer maturities, is that the obligation will always be there. “Greece is staring at decades of interest payments to the official sector,” said Adam Lerrick, a sovereign debt expert at the American Enterprise Institute. “They traded their ability to write down debt to private sector creditors for low-interest-rate official sector loans that cannot be reduced.”"
Saturday, February 25, 2012
The Greek Sustainability Report and Reaction & Analysis
Greek Sustainability Report
Greek debt sustainability analysis Report in full above--reaction and analysis of the Report below:
Greek accounting cannot hide the urgency for growth - FT.com: "“The troika have had to do some arithmetic gymnastics in order to make the numbers add up but their optimistic assumptions are unlikely to hold,” said Sony Kapoor, managing director of Re-Define, an economic consultancy that has advised European officials. . . . the confidential debt sustainability report points out that even if Greece’s budget reaches a surplus of 2.5 per cent every year, not including debt interest payments, getting “stuck” at that level could prove disastrous: “Debt would be on an ever-increasing trajectory,” the report found. The urgency for growth comes even though European Union officials acknowledged on Tuesday that they would seek significant further austerity measures from Athens throughout the bail-out programme."
Eurozone's shocking prescription for Greece – Telegraph Blogs: "A "strictly confidential" 10-page debt sustainability report commissioned for yesterday's meeting of eurozone ministers concludes that the austerity measures being foisted on Greece as a quid pro quo for a second, €130bn bailout, are quite likely to prove self-defeating, in that the austerity, by further weakening the economy, may well cause the debt to GDP ratio to rise further. Furthermore, the debt "haircut" being required of private investors may prevent Greece from ever returning to private markets for borrowing, making the country indefinitely reliant on official support. After the bailouts, so much of Greek's debt will be held by official repositories, all of who will have preferential treatment as creditors, that no private sector investor would go anywhere near it, knowing he'd be last in the queue of creditors"
The Future Is Not What It Used To Be - NYTimes.com:
The Future Is Not What It Used To Be by Paul Krugman
I’ve been comparing the original IMF projections for Greece with the secret recent sustainability analysis that everyone has. . . . Of course, everyone thinks the latest is wildly overoptimistic."
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Greek debt sustainability analysis Report in full above--reaction and analysis of the Report below:
UPDATE 2-Greek debt could easily derail again - EU/IMF report | Reuters: "Greece's second bailout programme could easily go off the rails and send the nation's debt rocketing back to today's unmanageable levels, a confidential study by its international lenders shows. The 9-page debt sustainability analysis, on which euro zone finance ministers based their decision on Tuesday to approve a 130-billion-euro rescue programme, is anything but a vote of confidence in Athens' ability to put its public finances back on a sound footing. Indeed the report, dated Feb. 15 and first obtained by Reuters on Monday, describes in the disembodied prose of economic bureaucrats how uncertain Greece's recovery will remain for many years, and how Athens will likely need international aid for an indefinite period. Experts from the European Commission, the European Central Bank and the International Monetary Fund highlighted the risks and questioned the assumption that Greece will be able to return to capital markets in the coming years."
Eurozone finance ministers agree second bailout for Greece; Troika sustainability report says outlook is grim: "The FT says the troika report explains why European countries were so opposed to the new financing programme for Greece. In an article headlined "Greek debt nightmare laid bare", it said: A German-led group of creditor countries – including the Netherlands and Finland – has expressed extreme reluctance to go through with the deal since they received the report."
Greek accounting cannot hide the urgency for growth - FT.com: "“The troika have had to do some arithmetic gymnastics in order to make the numbers add up but their optimistic assumptions are unlikely to hold,” said Sony Kapoor, managing director of Re-Define, an economic consultancy that has advised European officials. . . . the confidential debt sustainability report points out that even if Greece’s budget reaches a surplus of 2.5 per cent every year, not including debt interest payments, getting “stuck” at that level could prove disastrous: “Debt would be on an ever-increasing trajectory,” the report found. The urgency for growth comes even though European Union officials acknowledged on Tuesday that they would seek significant further austerity measures from Athens throughout the bail-out programme."
Eurozone's shocking prescription for Greece – Telegraph Blogs: "A "strictly confidential" 10-page debt sustainability report commissioned for yesterday's meeting of eurozone ministers concludes that the austerity measures being foisted on Greece as a quid pro quo for a second, €130bn bailout, are quite likely to prove self-defeating, in that the austerity, by further weakening the economy, may well cause the debt to GDP ratio to rise further. Furthermore, the debt "haircut" being required of private investors may prevent Greece from ever returning to private markets for borrowing, making the country indefinitely reliant on official support. After the bailouts, so much of Greek's debt will be held by official repositories, all of who will have preferential treatment as creditors, that no private sector investor would go anywhere near it, knowing he'd be last in the queue of creditors"
The Future Is Not What It Used To Be - NYTimes.com:
The Future Is Not What It Used To Be by Paul Krugman
I’ve been comparing the original IMF projections for Greece with the secret recent sustainability analysis that everyone has. . . . Of course, everyone thinks the latest is wildly overoptimistic."
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Friday, February 24, 2012
Eurozone: dead end zone?
Despite the second "bailout deal" for Greece, things still look dismal for the Eurozone:
German showdown with IMF looms as Bundestag blocks rescue funds - Telegraph: "Europe can’t find a solution because there isn’t one."
So, what would your plan for Greece be? — Crooked Timber: "I don’t have a solution myself – the more I end up discussing this with people, the more I am reminded of the London Business School proverb taught on some of the gnarlier case studies, which is “Not All Business Problems Have Solutions”."
Euro Agonistes - NYTimes.com by Paul Krugman: "Euro exit would allow a quick devaluation, solving the competitiveness problem — but it would be hugely disruptive and would generate vast ill-will, so it’s hard to see any government taking that step until there really are no alternatives (which may soon be true for Greece, but not the others). So there’s a kind of trap. If you imagine yourself as the Prime Minister of such a country, what can you do? For the most part, I’m afraid, you plead with the troika to make the austerity demands less severe, you do what you can to accelerate improving competitiveness (which isn’t much), and you wait for things either to get gradually better via “internal devaluation” or to get worse and provide the economic and political environment in which euro exit becomes a real possibility. It’s a hell of a way to make economic policy, but I don’t see any magic bullets."
Monday, February 20, 2012
Greece: a return to the drachma?
Better title for article below: "Only a return to the drachma can save Greece as unemployment soars"--
And yet, Greek leaders "fiddle" with a "sentimentality" for the euro (flawed currency that it is) while Greece continues to spiral down. And the French and Germans?
The European project is splitting apart at the very core - Telegraph: " . . . . On one hand, the defenders of the orthodoxy, led by the Commission and supported by France (which is exposed to a Greek default more than any other country), is battling to hold the line with another massive bail-out. . . On the other hand, it becomes increasingly clear that Germany, supported by Holland and Finland, has had enough. They see no point in throwing colossal sums of money into what Germany’s finance minister, Wolfgang Schäuble, calls “the bottomless pit” of Greek debt. It is they who have wanted to pile ever more impossible demands on Greece to hurry on a default. If other debtor countries such as Portugal, Italy and Spain follow suit and leave the euro that they should never have been allowed to join – so be it. . . . However the chips fall in coming days and months, the eurozone will disintegrate. The European dream has entered a nightmare stage from which there is no rational escape and the consequences will be horrendous, for Europe and the world."
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Sunday, February 19, 2012
Germany's plan for Greece to leave the euro
Thankfully, Wolfgang Schäuble, Germany's Finance Minister, has taken the lead to try to solve the Greek problem and help them get a "fresh start:"
Wednesday, February 15, 2012
Greece: the euro has always been a flawed currency
Greece and the return of the economic 'death spiral' | David Blanchflower | Comment is free | guardian.co.uk: " . . . For all the deals being signed in Athens and Brussels, the Greek people have worked out that they have no hope; protest and social unrest now looks a rational option to the ordinary people who are bearing the cost to bail out European banks. Cuts in the minimum wage right now are probably not very smart politics. Greece does still have a card to play – which is "one down, all down". An exit from the euro would result in a depreciated drachma, which would potentially give a much needed boost to tourism. And that sounds better than all other alternatives currently on offer. There is still time for Germany's Angela Merkel to get out her cheque book; but otherwise, it's all over – and quite possibly very quickly. This really is what a death spiral looks like. . . . "
Don't feel bad Greece, the euro has always been a flawed currency--
Euro doomed from start, says Jacques Delors - Telegraph: "In an interview with The Daily Telegraph, Jacques Delors, the former president of the European Commission, claims that errors made when the euro was created had effectively doomed the single currency to the current debt crisis. He also accuses today’s leaders of doing “too little, too late,” to support the single currency. . . . Mr Delors claims that the current crisis stems from “a fault in execution” by the political leaders who oversaw the euro in its early days. Leaders chose to turn a blind eye to the fundamental weaknesses and imbalances of member states’ economies, he says. “The finance ministers did not want to see anything disagreeable which they would be forced to deal with,” he says. The euro came into existence without strong central powers to stop members running up unsustainable debts, an omission that led to the current crisis. Now that the excessive borrowing of countries such as Greece and Italy has brought the eurozone to the brink of disaster, Mr Delors insists that all European countries must share the blame for the crisis. “Everyone must examine their consciences,” he says.". . . Mr Delors says that he shares some of the concerns that were expressed by British politicians and economists about the euro before its creation. When “Anglo-Saxons” said that a single central bank and currency without a single state would be inherently unstable, “they had a point”, he admits. . . ."
In other words, the sooner everyone in the Eurozone gets honest, the better. And the sooner Greece can leave the euro and start rebuilding, the better for the Greeks.
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Don't feel bad Greece, the euro has always been a flawed currency--
Euro doomed from start, says Jacques Delors - Telegraph: "In an interview with The Daily Telegraph, Jacques Delors, the former president of the European Commission, claims that errors made when the euro was created had effectively doomed the single currency to the current debt crisis. He also accuses today’s leaders of doing “too little, too late,” to support the single currency. . . . Mr Delors claims that the current crisis stems from “a fault in execution” by the political leaders who oversaw the euro in its early days. Leaders chose to turn a blind eye to the fundamental weaknesses and imbalances of member states’ economies, he says. “The finance ministers did not want to see anything disagreeable which they would be forced to deal with,” he says. The euro came into existence without strong central powers to stop members running up unsustainable debts, an omission that led to the current crisis. Now that the excessive borrowing of countries such as Greece and Italy has brought the eurozone to the brink of disaster, Mr Delors insists that all European countries must share the blame for the crisis. “Everyone must examine their consciences,” he says.". . . Mr Delors says that he shares some of the concerns that were expressed by British politicians and economists about the euro before its creation. When “Anglo-Saxons” said that a single central bank and currency without a single state would be inherently unstable, “they had a point”, he admits. . . ."
In other words, the sooner everyone in the Eurozone gets honest, the better. And the sooner Greece can leave the euro and start rebuilding, the better for the Greeks.
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Tuesday, February 14, 2012
Greece faces death by a thousand cuts
More on Greece, and its unnecessary and now prolonged suffering:
Greece faces death by a thousand cuts unless it leaves the euro - Telegraph: "Repeated rounds of austerity are proving self defeating, which makes it virtually certain that Greece will eventually have to come back for more. What are Europe's paymasters to demand then? . . . What is more, experience in Argentina and other countries that have both devalued and defaulted suggest that the economic shock of exiting a fixed exchange rate is relatively short lived. Once competitiveness has been restored by devaluation and default, growth prospects improve dramatically. The short sharp shock of exit is very likely better than the death by a thousand cuts implied by continued membership. . . . Consider now what this grim choice of death by a thousand cuts involves. What Greece has in essence committed itself to is an internal devaluation lasting years, if not decades into the future. There is no discernible end to the austerity; year after year, it grinds remorselessly on. Even if everything goes according to plan, which seems deeply unlikely on the record so far, it takes until 2020 to reduce the national debt to 120pc of GDP, a level still far too high to be remotely sustainable. In addition to having to run big primary surpluses into the indefinite future, Greece also faces a massive hit to nominal wages and living standards . . . There is not a hope of Greece growing its way back to debt sustainability while still in the euro. As things stand, capital is leaving the country by whatever means available . . . ."
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Monday, February 13, 2012
Greek lawmakers approve austerity bill as Athens burns
This is all so . . . unnecessary, and unfortunately the Greek politicians are just digging a deeper hole from which Greece will have to climb once it leaves the Eurozone and re-adopts the drachma--
Greek lawmakers approve austerity bill as Athens burns | Reuters: "The Greek parliament approved a deeply unpopular austerity bill to secure a second EU/IMF bailout and avoid national bankruptcy, as buildings burned across central Athens and violence spread around the country. Cinemas, cafes, shops and banks were set ablaze in central Athens as black-masked protesters fought riot police outside parliament. State television reported the violence spread to the tourist islands of Corfu and Crete, the northern city of Thessaloniki and towns in central Greece. Shops were looted in the capital where police said 34 buildings were ablaze. Prime Minister Lucas Papademos denounced the worst breakdown of order since 2008 when violence gripped Greece for weeks after police shot a 15-year-old schoolboy."
I guess never underestimate the egos of the Eurocrats!
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I guess never underestimate the egos of the Eurocrats!
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Saturday, February 11, 2012
Greek Default is not End of the World
Climax nears in Greek drama | Reuters: "Tortuous negotiations over a second bailout for Greece are set to come to a head on Wednesday, putting fragile market confidence to the test on the same day data is tipped to show the euro zone is entering a mild recession."
Krugman Says Greece Will Default on Its Debt, May Leave Euro - Bloomberg: "Greece will default on its debt and will probably quit the European monetary union, Nobel economics laureate Paul Krugman said. “The Greek situation is essentially impossible,” Krugman said at a conference in Moscow today. “They will default on their debt. In fact they already have. The question is whether they will also leave the euro, which I think at this point is more likely than not.”"
Note: leaving the euro doesn't mean leaving the European Union, just the Eurozone.
And the sooner Greece defaults and leaves the euro, the better off the Greeks will be in the long term.
A euro exit is the only way out for Greece - FT.com: "The Greeks will have to leave the euro, recreate the drachma and re-enter the still-existing exchange rate mechanism of the European Monetary System, the so-called ERM-II, which they departed in 2001."
Oh, and who owns the Greek debt? Go here and here. Biggest losers outside of Greece: Germany and France--surprised?
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A euro exit is the only way out for Greece - FT.com: "The Greeks will have to leave the euro, recreate the drachma and re-enter the still-existing exchange rate mechanism of the European Monetary System, the so-called ERM-II, which they departed in 2001."
Oh, and who owns the Greek debt? Go here and here. Biggest losers outside of Greece: Germany and France--surprised?
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Tuesday, February 7, 2012
Punk Economics: Lesson 1 [video]
What's wrong with Merkozy's plan for the Eurozone?
David McWilliams, Irish economist, gives us our first lesson in punk economics.
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Friday, February 3, 2012
Why the Early U.S. Didn't Go the Way of the Eurozone
Great article in Bloomberg on early U.S. history and how the Europeans failed in designing their currency--excerpt below:
Why the Early U.S. Didn't Go the Way of the Euro: Echoes - Bloomberg: "We usually don't think of the U.S. as a monetary union, but early in its history it essentially was. Unlike the crisis-wracked euro zone, the dollar zone survived its first few decades without a major crisis, providing the fragile young republic with a period of relative stability during which it began to congeal culturally, economically, politically and militarily. European policy makers hoped that the euro would serve as the unifying and integrating force of the European Union much as, they believed, the dollar had for the early U.S. What the Europeans failed to appreciate was that early America's real glue was not its dollar union but its fiscal one." . . . "So what kept the new nation together? First-rate economic statesmanship, not a shared unit of account. In the early 1790s, Treasury Secretary Alexander Hamilton defined the dollar in terms of gold and silver, but more significantly he established the taxes and institutions (collection system, central bank) that made it possible for the national government to service its own debts and those of the states. Assumption of state debts, as it was called, was positioned not as a bailout but rather as a way of ensuring that each state shouldered the burden of the Revolutionary War equally. Just as importantly, assumption made bondholders beholden to the national government, cementing the union together as Hamilton predicted it would. The U.S. Constitution effectively prevented state governments from endangering the monetary union by prohibiting them from issuing money or making anything other than gold or silver a legal tender. The Constitution didn't enjoin the states from incurring debt but -- with the exception of assuming war burdens -- the early national government refused all responsibility for state debts. . . "
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Why the Early U.S. Didn't Go the Way of the Euro: Echoes - Bloomberg: "We usually don't think of the U.S. as a monetary union, but early in its history it essentially was. Unlike the crisis-wracked euro zone, the dollar zone survived its first few decades without a major crisis, providing the fragile young republic with a period of relative stability during which it began to congeal culturally, economically, politically and militarily. European policy makers hoped that the euro would serve as the unifying and integrating force of the European Union much as, they believed, the dollar had for the early U.S. What the Europeans failed to appreciate was that early America's real glue was not its dollar union but its fiscal one." . . . "So what kept the new nation together? First-rate economic statesmanship, not a shared unit of account. In the early 1790s, Treasury Secretary Alexander Hamilton defined the dollar in terms of gold and silver, but more significantly he established the taxes and institutions (collection system, central bank) that made it possible for the national government to service its own debts and those of the states. Assumption of state debts, as it was called, was positioned not as a bailout but rather as a way of ensuring that each state shouldered the burden of the Revolutionary War equally. Just as importantly, assumption made bondholders beholden to the national government, cementing the union together as Hamilton predicted it would. The U.S. Constitution effectively prevented state governments from endangering the monetary union by prohibiting them from issuing money or making anything other than gold or silver a legal tender. The Constitution didn't enjoin the states from incurring debt but -- with the exception of assuming war burdens -- the early national government refused all responsibility for state debts. . . "
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Eurozone: Reality Check
http://www.telegraph.co.uk/finance/debt-crisis-live/9055782/Debt-crisis-live.html
06.47 In The Independent today, several financial experts offer their views on the future of the euro, with worrying results:
Danny Blanchflower, Professor of Economics, Dartmouth College: “The fundamental problem that has not been addressed is that there is no growth plan for Greece."
Nouriel Roubini, Professor of Economics, New York University: “The eurozone is a slow-motion train wreck. Not only Greece, other countries as well are insolvent. There’s a 50pc probability that over the next three to five years the eurozone will break up."
George Soros, currency trader: "We remain in the acute phase of the crisis; the prospect of a meltdown of the global financial system has not been removed. The trouble is that the cuts in government expenditures that Germany wants to impose on other countries will push Europe into a deflationary debt trap."
Alistair Darling, Chancellor of the Exchequer 2007-2010: "I don’t think anyone can realistically say that the eurozone will survive with its present membership and the longer the inaction goes on the greater the chance that one or more countries will be forced out."
Jim O’Neil, Chairman of Goldman Sachs Asset Management: "The reality is that too many countries joined the euro in the first place and ultimately without dramatic change they can’t probably survive."
Ed Balls, Shadow Chancellor: "Far from being over, I fear the eurozone crisis is this year entering a more chronic, drawn out but equally dangerous phase."
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06.47 In The Independent today, several financial experts offer their views on the future of the euro, with worrying results:
Danny Blanchflower, Professor of Economics, Dartmouth College: “The fundamental problem that has not been addressed is that there is no growth plan for Greece."
Nouriel Roubini, Professor of Economics, New York University: “The eurozone is a slow-motion train wreck. Not only Greece, other countries as well are insolvent. There’s a 50pc probability that over the next three to five years the eurozone will break up."
George Soros, currency trader: "We remain in the acute phase of the crisis; the prospect of a meltdown of the global financial system has not been removed. The trouble is that the cuts in government expenditures that Germany wants to impose on other countries will push Europe into a deflationary debt trap."
Alistair Darling, Chancellor of the Exchequer 2007-2010: "I don’t think anyone can realistically say that the eurozone will survive with its present membership and the longer the inaction goes on the greater the chance that one or more countries will be forced out."
Jim O’Neil, Chairman of Goldman Sachs Asset Management: "The reality is that too many countries joined the euro in the first place and ultimately without dramatic change they can’t probably survive."
Ed Balls, Shadow Chancellor: "Far from being over, I fear the eurozone crisis is this year entering a more chronic, drawn out but equally dangerous phase."
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Wednesday, January 25, 2012
The Eurozone's problem in one sentence
Davos 2012: George Soros warns 'debt crisis could destroy European political union' - Telegraph: "The trouble is that the austerity that Germany wants to impose will push Europe into a deflationary debt spiral" - George Soros at Davos 2012
(Soros also explained: "The measures introduced by the European Central Bank ... have relieved the liquidity problems of European banks but they did not cure the financing disadvantage from which the highly indebted member states suffer. Half a solution is not enough. It leaves the weaker members of the eurozone relegated to the status of third world countries that become highly indebted in a foreign currency.")
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(Soros also explained: "The measures introduced by the European Central Bank ... have relieved the liquidity problems of European banks but they did not cure the financing disadvantage from which the highly indebted member states suffer. Half a solution is not enough. It leaves the weaker members of the eurozone relegated to the status of third world countries that become highly indebted in a foreign currency.")
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Saturday, January 21, 2012
European Banks: Caveat Emptor
Central Bank Becomes an Unlikely Hero in Euro Crisis (NYTimes)
". . . the European Central Bank, which in late December under its new president, Mario Draghi, quietly began providing emergency loans to European banks — hundreds of billions of dollars of almost interest-free capital that the banks have used to come to the rescue of their national governments. . . . The central bank is preparing another infusion in February, and many banking experts expect it to be even bigger. The unspoken quid pro quo — that banks need to buy government debt in exchange for the central bank’s largess — seems to be working. The strategy is not without risks, warned Thomas Mayer, chief economist at Deutsche Bank in Frankfurt. “It may please some of the purists as it looks purer, but the banks may become addicted,” Mr. Mayer said. There is a limit to how much of this debt the banks can buy, he said. “Near-term relief of government bond deals may come at the cost of making the banks’ balance sheets more toxic. . . .”"
". . . the European Central Bank, which in late December under its new president, Mario Draghi, quietly began providing emergency loans to European banks — hundreds of billions of dollars of almost interest-free capital that the banks have used to come to the rescue of their national governments. . . . The central bank is preparing another infusion in February, and many banking experts expect it to be even bigger. The unspoken quid pro quo — that banks need to buy government debt in exchange for the central bank’s largess — seems to be working. The strategy is not without risks, warned Thomas Mayer, chief economist at Deutsche Bank in Frankfurt. “It may please some of the purists as it looks purer, but the banks may become addicted,” Mr. Mayer said. There is a limit to how much of this debt the banks can buy, he said. “Near-term relief of government bond deals may come at the cost of making the banks’ balance sheets more toxic. . . .”"
In other words, we have an already toxic situation in Europe becoming more toxic through official central bank policy. Many of the European banks were already in trouble due to their Eurozone bond holdings, so now they have nothing to lose in taking on more toxic assets? We may be headed for an even bigger bust down the road and have the ECB to thank for it.
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