EU economy 2011 – part II

Kenneth Matziorinis :
July 19, 2011 Resolving the Euro Debt Crisis and Saving the Euro: Could a Euro-Zone Bond be the Answer?
If you think that Greece is the problem, think again. The problem is not so much with Greece, it is with the euro. It is a systemic problem, with financial, economic and political dimensions, which has manifested itself first in Greece, admittedly the country with the worst fiscal position in the eurozone.
July 17, 2011 The Eurozone in Crisis: Change or Fail? This is the Question
The words ‘crisis’, ‘criterion’, ‘critic’ and ‘critical’ are derived from the Greek word ‘κρίση’ which means ‘judge’, ‘decide’ or ‘choose’. Although the term has been passed on to the English-speaking world, the full meaning of the word has not. To us it means a combination of surprise, uncertainty and threat to our established order. There are two connotations to the term crisis, a positive which means time to take the right decisions to resolve a problem and a negative which means ‘oh my God, we are in trouble’. We use the word only in the second sense of the term, the Ancient Greeks used it for both.

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The Ticking Euro Bomb – SPIEGEL’s recent cover story on the history of the common currency
Part 1 How a Good Idea Became a Tragedy
The Greek crisis has revealed why the euro is the world’s most dangerous currency. The euro was built on a foundation of debt and trickery, where economic principles were sacrificed to romantic political visions. The history of the common currency is the story of a good idea that turned into a tragedy of epic proportions.
Part 2
How the Euro Zone Ignored Its Own Rules
After they joined the euro zone, the countries of southern Europe suddenly discovered they could borrow money at German-style rates, and any hope of sorting out their dodgy finances vanished. But it was France and Germany who set the worst example, when they broke the euro-zone rules they had forced on others.
Part 3
What Options Are Left for the Common Currency?
Politicians have maneuvered their countries into an unparalleled situation in the euro crisis. And they already know what most voters don’t yet suspect. In the end, only two possibilities will remain to save the beleaguered common currency: an expensive transfer union or a smaller monetary union. Either solution will be extremely costly.
3 October
Eurozone struggles with Greece amid default fears
(Economic Times of India) The eurozone’s financial chiefs faced tough decisions over how to deal with Greece’s debt crisis on Monday after Athens’ admission that its deficit will be higher than promised sent markets tumbling.
Greece’s revelation calls into question whether Athens will receive the next installment of the bailout loan it needs to pay its day-to-day bills. If it doesn’t receive (euro) 8 billion ($10.8 billion) by mid-October, it could go bankrupt and would be unable to pay pensions and salaries.
Euro Crisis ‘Could Become a Global Conflagration’
Austan Goolsbee was President Barack Obama’s most important economic adviser until August. He told SPIEGEL that Europe must recapitalize its banks immediately to avoid the risk of a financial collapse. He says that Europe has been far too hesitant in combatting the ongoing debt crisis.
30 September
German Parliament Passes Euro Fund Expansion
Chancellor Angela Merkel got the majority she needed on Thursday as German parliament passed the expansion of the euro backstop fund, the EFSF. With fewer conservative renegades than feared, Merkel can breathe a sigh of relief. But with more difficult decisions approaching, the respite may not last.
23 September
Risk of depression is ‘huge’, Roubini warns
Policymakers are repeating the mistakes of the 1930s by failing to take bold action in the face of a renewed crisis
(Emerging Markets) The odds have risen sharply this week of a fresh financial crisis that will plunge the global economy into a major depression, as policymakers fall far short of the radical measures needed to address the fast approaching storm, economist Nouriel Roubini warned yesterday.
21 September
Soros: bite the bullet to save the euro
In an exclusive interview with Emerging Markets, Soros said that “if the crisis is contained,” the German electorate will “force austerity on the rest of Europe,” pushing the region into “a prolonged recession which could easily qualify as a depression”.
But a failure to muster the political will to move towards closer political and fiscal union would pose “a bigger threat than was the case in [the] Lehman Brothers [collapse]” – a scenario Soros said could precipitate “a banking crisis in which the global economy would be pushed into a serious depression”.
18 September
Sliding toward financial crisis
(Reuters) – At stake is the global recovery and future shape of Europe.
Calls are mounting for financial leaders of the world’s biggest economies meeting this week to take bold action, not on the scale of the $1 trillion rescue package of March 2009 but something equally important in policy terms.
The political hurdles remain significant but if the parts of the program are endorsed by G20 finance ministers and central bankers, and their governments continue to deliver, investment strategists say turmoil in markets should abate.
14 September
Moody’s cuts French banks as euro crisis deepens
(Reuters) – Moody’s cut the credit ratings of two French banks on Wednesday because of their exposure to Greece’s debt, highlighting growing risks to Europe’s financial sector from a deepening euro zone sovereign debt crisis.
The Trouble With French Banks
‘We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore,” [said] a bank executive for BNP Paribas. “Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore.”
That line — “We can no longer borrow in dollars” — is what got people freaked out, prompting the bank to issue a denial, saying it CAN still borrow in dollars (despite well known funding issues and money-market retrenchment).
Europe fears Greece is heading inexorably toward default
European politicians are beginning to acknowledge the possibility that bankruptcy is an option for Greece, which is caught in a dispute with the EU and IMF over the pace of its spending cuts.
Der Spiegel reports … With the next meeting of European finance ministers set for Friday in the Polish city of Wroclaw, US President Barack Obama urged EU leaders to prove their commitment to resolving the issue in an interview with Spanish journalists published on Tuesday.
Concern about the global effects of the euro crisis is so great in the US that Treasury Secretary Timothy Geithner will also attend the EU finance ministers’ meeting on Friday — an unprecedented move on his part. (Bloomberg) Geithner Said to Take Crisis Message to European Talks
10 September
Marseille lays bare G7 differences and lack of policy room
(Reuters) – Vague pledges and a lack of action by G7 countries underscored differences between Europe and the United States and a lack of room to maneuver in the face of the worst loss of confidence since the credit crisis.
6 September
Swiss bid to peg ‘safe haven’ franc to the euro stuns currency traders
Move – which effectively devalues the Swiss franc in an attempt to protect the economy – sparks fears of new currency war
(The Guardian) The Swiss National Bank in effect devalued the franc, pledging to buy “unlimited quantities” of foreign currencies to force down its value. The SNB warned that it would no longer allow one Swiss franc to be worth more than €0.83 – equivalent to SFr1.20 to the euro – having watched the two currencies move closer to parity as Switzerland became a “safe haven” from the ravages of the eurozone crisis.
The move stunned currency traders, and sent the Swiss franc tumbling against other currencies. Jeremy Cook, chief economist at currency brokers World First, said it was “intervention on a grand scale”, and the start of a “new battle in the currency wars”.
23 August
Rich EU Members Lose Patience with the ‘Olive Zone’
(Spiegel) The rich countries of the northern euro zone are bearing the brunt of bailing out their debt-stricken fellow members. Resentment is growing among their populations, helping euroskeptic right-wing populists to win support.  … the more government finances in Greece, Portugal, Italy, Spain and Ireland are thrown out of kilter, the more the countries with the best credit ratings are expected to vouch for the euro. They include, in addition to Germany and France, Finland, Luxembourg, the Netherlands and Austria.
Spain to create constitutional borrowing limit
(BBC) Spain’s government and opposition have agreed to pass a constitutional limit on public sector borrowing.
Last week, the French and German leaders called for all eurozone governments to introduce such a limit to help contain the euro debt crisis.
20 August
Peter Foster: Michael Lewis’s ship of euro fools
(National Post) Once, the most feared arrival in any country with financial skeletons stuffed in the closet was the IMF. Now it may be Mr. Lewis. Following his eviscerations of those who perpetrated the headshaking folly that led to the debacles in Iceland, Ireland and Greece, he turns his attention – in the September Vanity Fair – to Germany. It’s the Economy, Dummkopf! With Greece and Ireland in economic shreds, while Portugal, Spain, and perhaps even Italy head south, only one nation can save Europe from financial Armageddon: a highly reluctant Germany. The ironies-like the fact that bankers from Düsseldorf were the ultimate patsies in Wall Street’s con game-pile up quickly as Michael Lewis investigates German attitudes toward money, excrement, and the country’s Nazi past, all of which help explain its peculiar new status.
18 August
Angela Merkel, the German chancellor, and Nicolas Sarkozy, France’s president, met in Paris in the latest attempt to assure the world that the euro zone is not about to fall apart. Among their suggestions were balanced-budget rules in all 17 euro-zone countries, harmonised corporate-tax rates and a levy on financial transactions. But one idea was notably absent: jointly guaranteed “Eurobonds”, which a number of politicians and analysts say are the only way to dig the euro out of its hole. Read The bonds that tie-or untie, European leaders need to think and act more boldly to stem the euro crisis and The ties that don’t bond
15 August
ECB buys €22bn in eurozone bonds
The ECB spent €22bn on government bonds last week as it sought to prevent the eurozone debt crisis escalating out of control
15 August
George Soros: ‘You Need This Dirty Word, Euro Bonds’
(Spiegel) The future of the euro depends on Germany. Germany is in the driver’s seat because it is the largest country in Europe with the best credit rating and a chronic surplus. … the fact is that Germans are now in the position of dictating to Europe what the solution to the euro crisis is.
… There is simply no alternative. If the euro were to break up, it would cause a banking crisis that would be totally outside the control of the financial authorities. So it would push … the whole world into conditions very reminiscent of the Great Depression in the 1930s, which was also caused by a banking crisis that was out of control.
11 August
Focus of eurozone crisis turns to France
French president Nicolas Sarkozy gave his finance and budget ministers a week to devise measures to cut the country’s budget deficit
10 August
Europe Stumbles Toward a Tighter Union
The European Central Bank is acting like the de facto finance ministry of Europe
(Bloomberg | Business Week) Starting in the 1950s, Europe’s leaders edged closer. … Each step of the way the nations of Europe gave up a little more sovereignty. One thing no one surrendered: power over the national budget. Fiscal union, where a central authority has final say over each country’s spending and taxing, was never a possibility. Politically at least, it was a move too far: To control the budget was to control the nation itself. Now the idea is being debated like never before.
France’s triple A rating under spotlight
(FT) The country’s bond yields and deficit levels are relatively elevated and some major rating agencies regard it as one of the weakest of its peers
9 August
Stratfor adds insight in Global Economic Downturn: A Crisis of Political Economy
8 August
‘Some European Countries Are Fundamentally Bankrupt’
(Spiegel) Fears of a double-dip recession are growing following turmoil on the stock markets and Standard & Poor’s downgrade of the US. … Harvard economist Kenneth Rogoff criticizes President Obama for giving in to the Tea Party in the debt-ceiling negotiations and argues that the euro zone has to become a transfer union.
Desperate ECB bid to contain euro crisis
The European Central Bank signalled last night it was willing to begin purchases of Italian and Spanish bonds in an effort to contain the financial crisis.
(The Independent) As the White House grappled with the US’s economic troubles after a credit-rating agency reduced its standing on Friday. Last night the bank issued a statement saying that it would “actively implement” a bond purchase programme that could boost Spanish and Italian bonds and drive down interest yields that threaten those countries’ budgets. The move was designed to help Rome and Madrid fend off market attacks until a strengthened eurozone bailout fund is approved to help them.
4 August
Debt crisis in Europe: Worries grow of spread to larger economies of Italy, Spain
(WaPost) Fears mounted Wednesday that Europe’s debt crisis is reaching a critical tipping point, spreading from Greece, Ireland and Portugal to the larger economies of Italy and Spain.
The deepening woes raised the prospect of a crisis that would be almost as calamitous for the global economy as the one just avoided in Washington.
Investors drove borrowing costs for Italy and Spain to 14-year highs, fueling sharp stock market drops in London, Frankfurt, Paris, Milan and Madrid. Though Italian and Spanish bonds later rebounded, borrowing rates for both nations remained dangerously high, at more than 6 percent – and closing in on the 7 percent threshold that eventually triggered bailout talks with Greece, Ireland and Portugal.
On Thursday, the head of the European Union’s executive called on eurozone leaders to consider further changes to the region’s bailout fund, including increasing its size, the Associated Press reported.
18 July
Avoiding the Next Eurozone Crisis — How to Build an EU that Works
(Foreign Affairs) The Greek debt crisis has shaken the euro just in time for its 10th birthday.  If anything, the past few years have shown that although the euro is a remarkable construct, it is incomplete: the eurozone is financially unified but not yet politically unified enough. Monetary unity entails a much greater degree of political unity than many European commentators, politicians, academics, and publics assumed it would
UK banks lead market rout of lenders
(FT) Stress tests, designed to reassure markets about the robustness of Europe’s best banks, appeared to compound jitters
17 July
Tim Worstall: The European Bank Stress Test Results
(Forbes) The results of the European bank stress tests were released only after the markets closed at 5 pm on Friday and everyone’s had the weekend to digest them. European Bank Stress Test; Only Eight? Europe Is In Peril!
14 July
Reuven Brenner: Can Europe Become The New Land Of Milk And Honey?
(Forbes) … my strong impression is that the present crisis will not end up with it becoming more unified by planting the seeds of a European Ministry of Finance, issuing “European” bonds, and coordinating actions with the ECB.
Rather, the European governments will use a variety of short-term bandages and somehow muddle through, for a while. And then, facing an even bigger crisis, the present E.U. experiment will go up in a puff of smoke. What seems to be utterly missing in Europe at present is any sense of purpose. No politicians in any country are able to convey a vision of a model of a successful and prosperous society
The euro crisis — A substantial problem
(The Economist) The statement issued last night was a study in vagueness … , but the outlines of a compromise are becoming clearer: in exchange for a willingness by private bond-holders to support some form of debt rollover for Greece, euro-area members will have to support Greece in buying back its bonds from the secondary market.
Debt crisis threatens Italy
(FP Morning Brief) German and French banks hold about $150 billion in Italian debt, compared to only $36 billion in Greece. U.S. banks hold about $36.7 billion in Italian debt. European leaders are scrambling to arrange an emergency summit to address the crisis as early as Friday. (The Guardian) European debt crisis: stock markets tumble as Italy fears mount Economists have warned that Italian borrowing costs are approaching unsustainable levels ; (FT) Italy’s borrowing costs soar PM tries to rebut widespread criticism in the Italian media and the markets that his coalition was rudderless and divided ; (WaPost) Debt crisis threatens Italy, one of euro zone’s biggest economies
11 July
George Soros: Europe Needs a Plan B
As integration has turned into disintegration, the role of the European political establishment has also reversed, from spearheading further unification to defending the status quo. And, as heavily indebted countries are pushed towards insolvency, nationalist political parties – for example, Finland’s True Finns – have grown stronger, alongside more established counterparts elsewhere in Europe.
… two-speed Europe is driving member countries further apart. Greece is heading towards disorderly default and/or devaluation with incalculable consequences.
If this seemingly inexorable process is to be arrested and reversed, both Greece and the eurozone must urgently adopt a Plan B. A Greek default may be inevitable, but it need not be disorderly. And, while some contagion will be unavoidable the rest of the eurozone needs to be ring-fenced. That means strengthening the eurozone, which would probably require wider use of Eurobonds and a eurozone-wide deposit-insurance scheme of some kind.
23 June
The euro crisis If Greece goes…
The opportunity for Europe’s leaders to avoid disaster is shrinking fast
(The Economist) No matter what fictions they concoct this week, the euro zone’s leaders will sooner or later face a choice between three options: massive transfers to Greece that would infuriate other Europeans; a disorderly default that destabilises markets and threatens the European project; or an orderly debt restructuring. This last option …  is the best way out for Greece and the euro.
20 June
How the Euro Became Europe’s Greatest Threat
(Spiegel) The euro is becoming an ever greater threat to Europe’s common future. The currency union chains together economies that are simply incompatible. Politicians approve one bailout package after the other and, in doing so, have set down a dangerous path that could burden Europeans for generations to come and set the EU back by decades.
15 June
Euro Crisis in Athens: Greek Prime Minister Papandreou Offers to Resign
(Spiegel) On a day of protests and general strikes in Greece, Prime Minister George Papandreou offered to step down to pave the way for a unity government to lead the country through its current crisis.
9 June
The Berlusconi era will haunt Italy for years to come

(The Economist) The Bank of Italy’s outgoing governor, Mario Draghi, spelt things out recently in a hard-hitting farewell speech. He insisted that the economy desperately needs big structural reforms. He pinpointed stagnant productivity and attacked government policies such as delays in the civil-justice system, poor universities, a lack of competition in public and private services, a two-tier labour market with protected insiders and exposed outsiders, and too few big firms.
6 June
PM-elect aims to implement Portugal bail-out
(FT) Having led the PSD to a decisive general election victory, Mr Passos Coelho comes to government at a critical moment as Portugal faces a demanding deficit-reduction programme
3 June
Trichet’s Dream of a European Finance Ministry
(Spiegel) In his [acceptance speech of the prestigious International Charlemagne Prize for distinguished service on behalf of European integration], Trichet outlined an EU future in which a European Finance Ministry would have the power to veto the budgetary plans of euro-zone member states in certain situations.

5 Comments on "EU economy 2011 – part II"

  1. Lawrence July 18, 2011 at 10:27 pm · Reply

    A bit harsh on S&P, they are only the messenger here. This is a default, which was inevitable and there will be further defaults in the future. The situation is certainly not S&Ps fault, it is exclusively the fault of the political class in Greece, who borrowed money rather than collect taxes, for fear of losing votes. An absolute scandal. There is no easy way out of this I’m afraid.

  2. Kerry July 18, 2011 at 11:19 pm · Reply

    It seems to me that we have two systems… “democracy” where we decide which policies we like best for the economy and everything else, and “the real system” which is run by the banks and the financial institutions and the ratings agencies which can trump any decision made by any government or groups of governments anywhere in the world, and have an immediate, desperate effect on the lives of citizens they know nothing and care even less about. The idea of self determination of nation states is laughable. How did it get to this?

  3. Antal (Tony) Deutsch July 22, 2011 at 4:17 pm · Reply

    Re Avoiding the Next Eurozone Crisis
    The hypothesis that a measure of fiscal integration in Europe would be useful, is easy to subscribe to. That would involve a fair amount of sovereignty being surrendered to Brussels by all Eurozone members. How many of them could accept such arrangements? Tony

  4. Gordon Finch July 26, 2011 at 4:13 pm · Reply

    One of the most audacious frauds being perpetrated on the population of Europe is the bailout again of Greece, and the massive overvaluation of the Euro against other major currencies. The recent bank bailout of Greece is an unconscionable theft of taxpayer’s money using currency value debt reduction a deception to bring about a fraudulent delay in default. This ruse to satisfy the markets while efforts are made to avoid the inevitable default of Italy and a run on the banks is plutocracy. This time the situation is serious there is no bailout option for Italy unless the Euro is devalued or at least devalued in relation to PIIGS local fiscal conditions, this at least will give it a competitive advantage and stop contagion. But it’s unlikely the goose will be starved and die just before they release their control again and reluctantly. We are seeing similar plays in the US a war of politicians at the expense of the public who will be asked to vote in tax increases on top of job losses just before the debt ceiling is reached, and without guessing what the electioneering is all about. Then we look at the situation with Ministers and Newscorp who’s meetings in the UK appear a little heavy or one sided with senior Government officials and questionable Newscorp board members. Crooks in suits, payments to police, who says its fraud, normal business is this. The bankers are bust, the government are crooks, the police are corrupt, the ministers are backhanded, the MPs are fraudsters, the insurers are the vilest most dangerous financial predators on the planet, and some media moguls are insane.

    Then we have gold the only safe currency sold off on the cheap by some creep from Scotland, did anyone ask why, or who bought it and exactly how much or more importantly just how much does Britain have remaining. There certainly seems a lot of the heavy stuff in Switzerland’s coffers. You know, that bunch of criminals that are so secret they wont know who owns what, when asked. The BIS bank of international settlement springs to mind here, and the IMF alleged rapists, the World Bank penny pinchers and that guy in Europe rumstroff or something that nobody knew, heard of or had an opportunity to vote in. But its just another day, business as usual, its fraud of cause but then who care its just the taxpayer who pays and nobody cares, well at least those in government don’t, so its up to just you and me, have a nice day.

  5. Antal (Tony) Deutsch October 7, 2011 at 6:58 pm · Reply

    It is difficult not to agree with Der Spiegel’s analysis. They were kind to spare us the scenario of what happens if no one does anything significant. Tony

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