Greece, EU and world economy 2011-2013
A bit of black humor: Clarke and Dawe: Lending merry-go-round
How can broke economies lend money to other broke economies who haven’t got any money?
The Greek Economy
the novelty of giving Greece $100 billion dollars every fortnight will wear off at some point
See also EU economy and News and Commentary on NSoA website
Deep divisions reopen over eurozone
After a period of calm, disputes on whether Greece will default again and how to sort out the problem of eurozone banks deepen the fault lines
The eurozone crisis came back into the spotlight last night as speculation mounted at the IMF/World Bank meetings that the Troika of IMF, European Union and European Central Bank (ECB) would have to take some losses on their holdings of Greek debt as early as next year.
The hotly-disputed banking union plan was another issue on which policymakers were still deeply divided.
“We are in a situation where we do not know, especially with the recapitalization of the financial institutions that the eurozone is going to put on, whether we are solving future problems or past problems,” the governor of the Czech central bank, Miroslav Singer, told Emerging Markets.
Greek PM faces allies, court on state TV closure
(Reuters) – Greek Prime Minister Antonis Samaras faced a double challenge on Monday from coalition partners furious over the shutdown of state broadcaster ERT and a court hearing that could put the shuttered station back on air.
ERT’s abrupt closure last week in the name of austerity to please EU and IMF lenders triggered a deep rift in the ruling coalition, throwing the debt-choked nation back into turmoil just as faint hopes of a recovery had begun to sprout.
ERT shutdown: European Broadcasting Union sets up makeshift studio
EBU provides satellite news gathering operation in car park outside Greek state broadcaster’s Athens headquarters
(The Guardian) The European Broadcasting Union has stepped in to help Greek TV journalists keep the country’s state broadcaster on air after the government announced on Tuesday night it was closing it down as an austerity measure with immediate effect.
A number of ERT staff have defied the government order, staying overnight in the broadcaster’s headquarters and managing to continue broadcasting a makeshift schedule of news and talk shows.
IMF ‘to admit mistakes’ in handling Greek debt crisis and bailout
Internal reports to suggest International Monetary Fund underestimated the damage austerity would cause to the eurozone country
Documents presented to the Fund’s board last Friday will reveal that the Washington-based organisation underestimated the damage austerity would cause to the eurozone country, which has required two bailouts in the past three years.
The Wall Street Journal reported that the papers would say that financial support from the Fund, the European Central Bank and the European Commission had bought time for Greece but had only been made possible because the IMF had bent its own rules to make the country’s debt look more sustainable than it was. According to the WSJ report, Greece failed to meet three of the Fund’s four tests to qualify for help.
Legal council to assess WWII debts report
Foreign Minister Dimitris Avramopoulos Tuesday submitted a confidential report leaked to the media over the weekend to the head of the State Legal Council, Fokinas Georgakopoulos. The report suggests that Germany owes debt-wracked Greece 162 billion euros in World War II reparations.
Georgakopoulos is to examine the 80-page document, which was drafted by a team of Finance Ministry experts on the basis of substantial archival material and legal decisions, and assess the legality of the claims before submitting a report to the government.
The leaked report concludes that German authorities are obliged to pay Greece 108 billion euros for damage to infrastructure and another 54 billion euros for a loan that the Nazi occupation forces obliged Greece to take in order to pay Berlin during the war. The reparations are equivalent to about 80 percent of Greece’s gross domestic product.
Greece’s troubled economy pushes illegal logging across forests in the countryside
(Planet Ark/WEN) With Greeks already struggling under wage and pension cuts imposed by the foreign lenders that bailed their country out, many have stopped using heating oil altogether, pushing consumption down 70 percent in the last three months of 2012 from a year earlier.
Instead, Greeks are turning burning firewood – using anything from branches to old furniture – which has helped create a blanket of smog over the Greek capital while illegal logging multiplies across forests in the countryside.
Euro zone, IMF secure deal on cutting Greek debt
(Reuters) – Euro zone finance ministers and the International Monetary Fund clinched agreement on reducing Greece’s debt on Monday in a breakthrough to release urgently needed loans to keep the near-bankrupt economy afloat..
Greek government defies protests to approve more austerity
(Reuters) – Greece’s government voted by a razor thin margin on Thursday to approve an austerity package needed to unlock vital aid and avert bankruptcy, despite an internal rift and violent protests at the gates of parliament.
Lawmakers approved the spending cuts, tax hikes and measures making it easier to hire and fire workers after nearly 100,000 Greeks waving flags and chanting “Fight! They’re drinking our blood!” descended on Syntagma Square in central Athens.
Despite the abstention of their junior ruling partner the Democratic Left, Prime Minister Antonis Samaras’s New Democracy Party and its Socialist PASOK allies passed the 500-odd page bill shortly after midnight.
Greece is governed by a corrupt clique, says Kostas Vaxevanis
Acquitted Greek editor adds that only foreign media stopped news of arrest over publication of ‘Lagarde list’ being buried
(The Guardian) Greece is undergoing a crisis of democracy with press censorship at its centre, says the magazine editor in the middle of the media storm that has engulfed Athens. Speaking to the Guardian a day after being cleared of breaching privacy laws, Kostas Vaxevanis said Greece was ruled by a clique of corrupt politicians in thrall to businessmen who owned – and gagged – the media.
“The country is governed by a poisonous combination of politicians, businessmen and journalists who cover one another’s backs. Every day laws are changed, or new laws are voted in, to legitimise illegal deeds.”
With a substantial chunk of the Greek media owned by magnates or financed by banks, journalists were in effect silenced. “It’s tragic. Greeks only ever learn half the truth and that is worse than lies because it has the effect of creating impressions,” he said.
… Politicians had had more than two years to act on the list, handed to Greek authorities by the IMF head, Christine Lagarde, who was then French finance minister, but had not investigated it.
“Lagarde gave similar lists to Germany, France, Spain and Italy, and in each of those countries it was acted on and revenues in turn were accrued. Here, they are constantly saying they will deal with tax evasion, because it is the root of our country’s economic problems, and they did absolutely nothing because there are people on the list who are friends of those in power,” he said.
Why Merkel Wants To Keep Greece in Euro Zone
(Spiegel) Angela Merkel has made a surprising U-turn in her policy on Greece. The German chancellor now wants to stop Athens from leaving the euro zone at all costs — even if it means massaging the figures in the upcoming troika report. For the German leader, it is essential to avoid the consequences of a Grexit before national elections next year.
From Robin Bew, Chief Economist, Economist Intelligence Unit
A novel idea for helping Greece
Among the many economic problems that Greece faces is capital flight, as jittery foreign investors pull their money from the country and park it in safer assets. In an attempt to reverse the trend, the Greek government is proposing to create “special economic zones“, or SEZs, offering tax breaks and other incentives. The plan faces many uncertainties, not least the possibility that SEZs may break EU rules. But if successful, it could provide a welcome influx of new capital and even help to reduce (if only slightly) the country’s debt. My team of analysts and I will be keeping a close eye on this and other policy developments as Greece struggles to avoid the dreaded “Grexit”.
Grexit Showdown — Greece’s Fate to Be Decided at October EU Summit
(Spiegel) European leaders are unconvinced that the Greek government’s austerity efforts will produce quick results. Greece’s fate is now likely to be decided at the EU summit in October. The country’s European partners will have to choose among a number of equally unattractive alternatives.
Greece Before the Abyss Only Bankruptcy Can Help Now
(Spiegel) Greece has disappointed its creditors yet again. Now its government plans to ask for more time — and needs billions more in aid. But Greece’s euro-zone partners are unwilling to provide any more help, meaning that the only hope now is to admit defeat and let the country make a fresh start.
New Project to Save Greece: ‘For a Donation of 3,000 Euros, Every Greek Can Buy Freedom’
(Spiegel) Greek shipping heir Peter Nomikos has taken matters into his own hands. While EU leaders wrangle for a solution to Greece’s problems, Nomikos started a non-profit to wipe out the country’s debt. If all of his countrymen do their part, he tells SPIEGEL ONLINE, they will be able to shore up the country’s finances.
Mohamed A. El-Erian: Greece Needs to Chart a Different Course
(HuffPost) Greece’s political leaders still don’t seem to get it, and neither do its official creditors. The longer this problem persists, the greater the challenge of turning around a country already beset by recession, insolvency, distressingly high unemployment and rising poverty.
Anne-Marie Slaughter: Reinventing the European Dream
(Project Syndicate) … … Natural-gas fields in the Eastern Mediterranean are estimated to hold up to 122 trillion cubic feet, enough to supply the entire world for a year. More gas and large oil fields lie off the Greek coast in the Aegean and Ionian Seas, enough to transform the finances of Greece and the entire region. Israel and Cyprus are planning joint exploration; Israel and Greece are discussing a pipeline; Turkey and Lebanon are prospecting; and Egypt is planning to license exploration.
But politics, as always, intervenes. … In short, the riches, jobs, and development that would flow to all countries in the region from responsible energy exploitation may well be blocked by the insistence of each on getting what it regards as its fair share and denying access to its enemies.
The vision of a Mediterranean Energy Community thus seems destined to remain a pipedream. Yet …
(Foreign Policy) World markets initially responded positively to the election results, which suggested that Greece could remain in the eurozone. But the rally proved short-lived as concerns once again cropped up about the challenges that still face Greece and the eurozone as a whole. This morning, Spain’s borrowing costs rose above 7 percent for the first time since the creation of the euro.
Greek pro-bailout parties look to forge coalition
Political parties supporting Greece’s international bailout will begin forging a government on Monday after an election victory over radical leftists staved off the prospect of the debt-laden country leaving the euro and brought relief to global markets.
NIALL FERGUSON: ‘If There’s Going To Be A Lehman Moment In The Crisis, It’s Going To Be Next Week’
(Business Insider) Harvard professor Niall Ferguson told Bloomberg TV this morning that a Lehman moment could be nearing for the euro crisis as elections in Greece threaten to undermine European stability.
“If there’s going to be a Lehman moment in the crisis it’s going to be next week,” he explained, saying that the back-and-forth between Athens and Berlin is “a game of chicken” that will not be resolved until the power structure in Greece has been decided.
Countries across world gird for Greece turmoil
(Reuters) – The threat of turmoil sweeping across global markets next week if Greece’s election prompts a panicky flight of money from the euro zone has policymakers from Beijing to Zurich preparing to protect their currencies and economies from an unwelcome influx.
Vikram Nehru: The Grexit’s Threat to Southeast Asia
(Carnegie Endowment) Southeast Asian economies are particularly vulnerable to a global slowdown given their direct and indirect trade links with Europe and the United States. Not only will direct exports to Europe take a hit, but component and commodity exports immediately headed to China will also suffer if Chinese exports to the advanced economies are affected, as they almost certainly will be. And a slowing global economy will mean lower commodity prices, leading to still lower export revenues for Southeast Asia.
News Analysis: Keeping Greece in eurozone everyone’s priority
(Xinhua) — As Greek politicians are busy campaigning for parliamentary seats, the question of whether the debt-ridden country will stay in the eurozone remains unanswered.
German analysts say unforeseen consequences might be brought about by a possible Greek exit from the single currency club. The eurozone members will therefore do everything possible to keep Greece within the bloc.
Even if Greece stays, eurozone faces huge challenges
OECD joins call for eurozone bonds
(Financial Times via CNN) — The Organisation for Economic Co-operation and Development has joined French and EU officials in calling for a move towards jointly-guaranteed eurobonds at a time it sees as perilous for the global economy.
In its twice-yearly economic outlook, the Paris-based international organisation which specialises in economic policy for advanced economies, warned of a vicious circle in the eurozone, “involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth”.
What could happen next if Greece leaves the eurozone?
Click on the labels on the graphic to read more about some of the possible consequences.
G8 leaders end summit with pledge to keep Greece in eurozone
US and France succeed in putting promotion of growth at top of communique despite Germany’s resistance to stimulus package
Nouriel Roubini: Greece Must Exit
(Project Syndicate) The Greek euro tragedy is reaching its final act: it is clear that either this year or next, Greece is highly likely to default on its debt and exit the eurozone.
Postponing the exit after the June election with a new government committed to a variant of the same failed policies (recessionary austerity and structural reforms) will not restore growth and competitiveness. Greece is stuck in a vicious cycle of insolvency, lost competitiveness, external deficits, and ever-deepening depression. The only way to stop it is to begin an orderly default and exit, coordinated and financed by the European Central Bank, the European Commission, and the International Monetary Fund (the “Troika”), that minimizes collateral damage to Greece and the rest of the eurozone.
Greece to hold new election, jolts euro markets
Attempts to form a government in Greece collapsed on Tuesday, jolting financial markets at the prospect leftists opposed to the terms of an EU bailout could sweep to victory and nudge the euro zone crisis into a dangerous new phase.
EU central bankers ponder Greece euro exit
(BBC) Europe central bankers have been openly expressing views on the possibility of Greece leaving the eurozone as its leaders struggle to form a government. BUT How would Greece leave the euro?
… one major issue is that there simply is no mechanism to leave the euro. It was never envisaged by the bright-eyed politicians who created the impetus for the currency, which debuted in 1999.
“The [Maastricht Treaty] doesn’t foresee an exit from the eurozone without exiting the EU,” the European Commission has said. … The option of leaving the EU was only added in Article 50 of the Lisbon Treaty in 2007. So under its current obligations, for Greece to exit the euro or be thrown out, it would have to leave the EU.
Pensioner’s Death Sparks Clashes in Athens
(Der Spiegel) In a note found in his clothing, the man reportedly blamed the debt crisis and austerity measures for his suicide.
Goldman Secret Greece Loan Shows Two Sinners as Client Unravels
(Bloomberg) Greece’s secret loan from Goldman Sachs Group Inc. (GS) was a costly mistake from the start.
On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said.
New Greek Government Runs Out of Steam
(Spiegel) Six weeks after forming a transitional government to overcome its crisis, Greece is still failing to deliver its promised reforms. The cabinet of Prime Minister Lucas Papademos is deeply divided and has lost the public’s confidence. Even the most urgent measures have ground to a halt.
Eurozone gives Greece $10.7 billion lifeline, stumble over plans to beef up rescue fund
(ipolitics) The ministers did agree to use the fund to offer financial protection of 20 to 30 per cent to investors who bought new bonds of troubled eurozone nations, an effort to help those countries get back to borrowing on global markets again.
(Reuters) – With the European Union demanding a quick resolution to the political crisis, Prime Minister George Papandreou sealed a deal on Sunday with the conservative opposition on the crisis coalition to approve the international financial aid package. … But whoever leads the transitional government of national unity will have a monumental task in restoring order to a country whose chaotic economy and politics are shaking international confidence in the entire euro project.
Greece calls off referendum on Euro bailout
(FP) Greek Prime Minister George Papandreou canceled a referendum on a new deal with Euro zone countries to limit Greek’s debt. His decision came after winning some support from Greece’s opposition, but a confidence vote on Friday and an internal rebellion within his Socialist Party still threaten his rule.
CHART OF THE DAY: Today’s Epic Greek Pandemonium In One Huge Chart
A Greek drama
(The Economist) GREECE is not only the cradle of democracy, but of drama. The latter in particular was in rich supply after George Papandreou, the country’s prime minister, hastily announced a plan for a referendum on the new bail-out package that had been approved at last week’s European Union (EU) summit. First Mr Papandreou had to confront a hostile cabinet (although it has since endorsed the idea of a referendum). Then he faced the threat of a rebellion by his Panhellenic Socialist Movement (Pasok). (Spiegel) EU Shocked and Furious at Greek Referendum Plan (The Guardian) Greek government on brink as referendum call triggers market slump ; (BBC) Greece’s Papandreou in crisis talks over bailout revolt ; The Guardian offers minute-by-minute coverage
Europe’s leaders have agreed on how to prop up the euro. For now
(The Economist) … the euro zone has woken up from the lie that Greece could one day repay its debts. A supposedly confidential new assessment of Greece’s prospects, drawn up earlier this month by the “troika” of the ECB, the IMF and the European Commission, makes dire reading. Austerity has pushed Greece further into recession than expected; this year output is expected to shrink by 5.5%, and the country will not return to growth until 2013. Moreover, structural reforms to boost growth have been implemented slowly while the forecast for European economies has dimmed, further darkening the outlook for Greece.
Costas Douzinas: Greece’s lines now are clear
The Greek elite that tried to push through policies on the back of a deficit it fuelled stands alone and accused
(The Guardian) After two days of massive strikes and street battles, Greece seems to be edging ever closer to the brink. As European leaders gather this Sunday in a last ditch bid to save the euro, a Greek author condemns the national elites that have brought his country to this juncture.
Greek rescue – if only
By Reuven Brenner
(Asia Times) Consider first the demographic issues surrounding Greece and Europe, and see how they are linked to potential solutions.
In a world where political institutions would be stable within a country, and sufficiently similar across countries, capital should flow from the older to the younger generations, be it within a country or across borders. Whether private entities or governments make the promises to pay, the fulfillment of promises depend on returns from the thus-financed investments. Then, either directly, or, indirectly, through taxes, these returns, paid back by future generations would then support the retired generations in their rainy days, be it health or age-related.
But what if there are no future generations? Or diminishing number of them?
Europe’s Own Arms Dealers and Loan Peddlers Took Down Greece
Profit-hungry bankers, weapons makers pushed EU member over brink.
(The Tyee) There has been much finger wagging from Germany about the need for Greek fiscal restraint and discipline, but what role have the German arms industry and predatory European banks played in creating this crisis? Over the last decade, Greece has been the largest importer of conventional military hardware in the European Union. Greek military spending as a percentage of GDP is more than any other EU member and tops even nations such as Pakistan, which is engaged in a variety of ongoing conflicts. [Emphasis added]
Analysis: Moment of truth nears for Greece, euro zone
(Reuters) – Between now and mid-December, the sheer onslaught of high-level gatherings — whether euro zone finance officials, EU leaders or the G20 — is likely to force a resolution of the most pressing issues confronting policymakers as they battle to get to grips with Greece, Spain and Italy.
Kimon Valaskakis responds to the Stratfor analysis
Portfolio: Preparing for Greece’s Failure
(Stratfor) Greece simply can’t compete unless it is being given a constant, steady supply of capital from abroad that it doesn’t necessarily have to pay back. And even if that could be restarted, Greece can not emerge from its own debt load. It is simply too large. Greece has to be kicked out of the eurozone if the euro is to survive … The EFSF expansion has to happen because if you cannot sequester the 280 billion euro of Greek government debt that exists outside of Greece, then you’re going to trigger a massive financial catastrophe that the eurozone simply can’t survive. And so to prepare for a Greek ejection, you have to prepare a fund that can handle three things more or less simultaneously. First, you need about 400 billion euro to firebreak Greece off from the rest of eurozone. Second, you need about 800 billion euro in order to prevent a wide-scale banking meltdown, because the day that Greece defaults on that debt, the day that it’s ejected from eurozone, there will be catastrophic banking collapses in Portugal, Italy, Spain and France, probably in that order.
Third, the markets will go wild and the state that is in the most danger of falling after Greece is Italy. So until the Europeans have 2 trillion euro in funding stashed away, they can’t kick Greece out of the system. [Emphasis added]
Debt-Choked Greece Seeks Solar Bonanza
(Planet Ark) Sun-baked and debt-choked Greece presented on Monday a plan to become Europe’s solar energy powerhouse, attracting up to 20 billion euros of investment in the decades to come to lift its economy out of the doldrums. … The ambitious plan, called “Project Helios,” involves multiplying Greek solar power production from 206 megawatts(MW) in 2010 to 2.2 gigawatts (GW) by 2020 and up to 10 GW by 2050, according to an Energy Ministry presentation.
The euro-zone crisis summit: Russian or Belgian roulette?
(The Economist) … In order to address the threat of contagion, the leaders decided that the main bail-out fund, the European Financial Stability Facility (EFSF), would be made more flexible so that it could fight smaller fires before they became uncontrolled blazes. It would be able to extend short-term lines of credit, recapitalise banks and buy the bonds of vulnerable countries on the secondary market. … For more on this, see Bagehot’s Notebook Britain changes its mind about a two-speed Europe).
Europe agrees sweeping new action on debt crisis
(Reuters) – Euro zone leaders have agreed on a bold rescue package for debt-stricken Greece and will give their financial rescue fund sweeping new powers to prevent market instability spreading through the region. … a second bailout for Athens involving an extra 109 billion euros ($157 billion) of government money, plus a substantial contribution from private sector bondholders.
Andres Velasco: How to End the Greek Tragedy
(Project Syndicate) The EU is pinning its hopes on one mechanism to reduce Greek debt: loans from the European Financial Stability Facility that would allow Greece to buy its own debt at a discount in the secondary market. But, while allowing the EFSF to finance buybacks is a step forward, a slew of theoretical and empirical research, generated by developing countries’ efforts to buy back their debt in the 1980’s and 1990’s, has shown that it is far from a cure-all.
Nouriel Roubini: The Eurozone’s Last Stand
(Project Syndicate) The eurozone crisis is reaching its climax. Greece is insolvent. Portugal and Ireland have recently seen their bonds downgraded to junk status. Spain could still lose market access as political uncertainty adds to its fiscal and financial woes. Financial pressure on Italy is now mounting.
… the only realistic and sensible solution is an orderly and market-oriented – but coercive – restructuring of the entire Greek public debt. But how can debt relief be achieved for the sovereign without imposing massive losses on Greek banks and foreign banks holding Greek bonds?
The answer is to emulate the response to sovereign-debt crises in Uruguay, Pakistan, Ukraine, and many other emerging-market economies, where orderly exchange of old debt for new debt had three features: an identical face value (so-called “par” bonds); a long maturity (20-30 years); and interest set well below the currently unsustainable market rates – and close to or below the original coupon.
Rodrigue Tremblay — Greece and the Euro: A Time of Excessive and Unproductive Debt and of Financial Implosion
… Indeed, membership in a monetary union and the adoption of a common currency for a group of countries can be a powerful instrument to stimulate economic and productivity growth, with low inflation, when such monetary unions are well designed structurally, but they can also turn into an economic nightmare when they are not.
Unfortunately for many poorer European members of the euro monetary union, the rules for a viable monetary union were not followed, and its unraveling in the coming years, although deplorable, should be of no great surprise to anyone knowledgeable in international finance.
IMF urges private sector to share Greek burden
(FT) Euro finance ministers have moved towards forcing investors to accept reduction in asset values, in spite of ECB attitude
Eurozone governments warned on bail-outs
(FT) Eurozone governments should not assume the private sector will participate in a new Greek bail-out deal, the European Central Bank has warned
Playing Make-Believe With Greece
(NYT) As the tear gas cleared in Athens this week — and the Greek Parliament agreed to a new round of austerity that will raise unemployment and prolong a debilitating recession that almost certainly will ensure that the latest fiscal targets are missed — the critical concern seemed to be making sure that no financial institution will ever have to admit making a bad loan. [emphasis added]
What have we become?
(The Economist) As Greece’s 300 legislators debated, and finally approved, an internationally backed financial-rescue plan with many clear downsides—it will pile pain onto hapless firms and citizens who already pay taxes, for instance, and so subsidise those who do not …
A group of 18 Greek economists (mostly from the nation’s academic diaspora, in flight from the cronyism and disorder that mar campuses back home) listed some of the likely results if the country opted for autarky: in other words, if it stopped paying its debt and rejected the idea of moving, with foreign help, towards fiscal and administrative health. Public-sector wages would plunge, banks would crash, the country would be barred from world debt markets for years. Leaving the euro could cause hyperinflation.
Greek Vote Obscures Europe’s Unsavory Choices: View
(Bloomberg) Today, the Greek government will try to push through Parliament an austerity package to avert a default on billions of euros in government debt. Success, though, will only postpone an unsavory choice that the euro area’s leaders will face sooner or later: Let Greece go and put both the European experiment and the global economy at risk, or forge a deeper union in the face of opposition from their voters.
Greece’s foibles, though, would not have led to a crisis without the help of Germany and France. They set the precedent when, for three years beginning in 2002, they exceeded the prescribed budget-deficit limits with impunity.
Arianna Huffington: Postcard From Greece: This Should Not Be About Austerity, It’s About the Future of Democracy
(HuffPost) Given that the Greeks invented democracy, it’s only fitting that they’re now being given the chance to reinvent it. … Until I went over and witnessed what’s happening, I too had become convinced that the real issues were the ones the media were obsessively covering: the effects of a potential sovereign default on the Euro and worries about the crisis spreading to other European countries. But here’s the bigger issue: Can a truly democratic movement break the stranglehold of corrupt elites and powerful anti-democratic institutional forces that have come to characterize not just the politics of Greece, but most Western democracies, including our own?
Democracy’s Cradle, Rocking the World
by Mark Mazower
(NYT via The Greek Crisis) Yesterday, the whole world was watching Greece as its Parliament voted to pass a divisive package of austerity measures that could have critical ramifications for the global financial system.
It may come as a surprise that this tiny tip of the Balkan Peninsula could command such attention. We usually think of Greece as the home of Plato and Pericles, its real importance lying deep in antiquity. But this is hardly the first time that to understand Europe’s future, you need to turn away from the big powers at the center of the continent and look closely at what is happening in Athens. For the past 200 years, Greece has been at the forefront of Europe’s evolution.
Greece: The moment of truth
(BBC) Last year 400,000 jobs were lost. Almost every street in Athens has boarded-up shops where owners cannot pay their loans. The despair and bitterness are palpable.
For this year an extra 6.5bn euros (£5.8bn) in cuts needs to be found. The middle class will face a solidarity tax. The threshold at which Greeks start paying tax will drop from 12,000 euros to 8,000 euros. The self-employed will be hit with a tax levy.
By 2015 a total of 28bn euros of savings have been earmarked. A fifth of civil service jobs are set to disappear and 50bn euros must be found from privatisations.
Gwynne Dyer — International finance: Nowhere to hide
(Tehran Times) As the IMF recently warned, “A disorderly outcome cannot be excluded.” It was hinting that the euro itself might crash, taking the European or even the global economy down with it — and yet China seems strangely unworried.
Greece and the euro The brewing storm
George Papandreou’s new government has passed its first pressing test. But disaster may still loom
It is entirely possible that in the weeks to come the situation in Athens could go from being strained, angry and confused to plain catastrophic: negotiations between Greece’s economic rescuers and its political leaders may fail, and the state may run out of money and/or crash out of the euro, triggering a financial crisis that would reverberate round the world.
The euro crisis If Greece goes…
(The Economist) The opportunity for Europe’s leaders to avoid disaster is shrinking fast
Don’t Believe These Greek Myths
(WSJ) As the Greek turmoil swirls, some commonly held beliefs are worth debunking:
1. Greece is insolvent.
No, it isn’t. …
2. It is in Greece’s interest to default.
Hardly. The country is still running a large primary deficit, so even if it inflicted 50% “haircuts” on bondholders, it would still need to borrow money immediately or face huge spending cuts overnight to balance the books. Worse, the Greek banking system would collapse as its capital was wiped out and its funding dried up; under European Central Bank rules, Greek government bonds would no longer be eligible as collateral. Nor would it make life easier if Greece tried to leave the euro, since this would likely trigger an immediate run on its banks. Read more
The Great Greek Illusion
By ROGER COHEN
(NYT) Past glory is a wonderful thing — and a lousy guide for present policy. That’s true in the Holy Land, in Kosovo and in Athens. Greece should not have been allowed into the euro. It failed to join in 1999 because it did not meet fiscal criteria. When it did meet them in 2001, the fix came through phony budget numbers.
Spartan: Disciplined, frugal. Greece: Certainly not Sparta
Greece’s troubles deepen
(Globe & Mail via CTV) Watching the steady collapse of Greece, one is tempted to contrast its troubles with the power of Sparta in its glory days. Not the military bit, of course, but certainly the discipline and frugality that came to be the hallmark of the ancient Greek city-state.
Euro economists expect Greek default, BBC survey finds
Two-thirds of respondents predicted a default. However, most thought the euro would survive in its current form.
A little historical context: ‘Germany Was Biggest Debt Transgressor of 20th Century’
(Spiegel Online) Economic historian Albrecht Ritschl argues [that Germany] has been the worst debtor nation of the past century.
More recent historical context supplied by Guy Stanley who comments
Historians try to remember that events in the past were once in the future. Here’s the IMF exec sum of their Article IV Greece consultation report from 2007.
• The Greek economy has been buoyant for several years and growth is expected to remain robust for some time. The risks to the outlook are tilted to the downside. In the near term, risks stem from a weaker external environment and a potential liquidity squeeze of banks. Over the longer-term, a persistent loss of competitiveness raises the prospect of a prolonged period of slow growth. Averting this risk requires improving cost competitiveness through wage moderation, an environment that encourages product upgrading, and a broadened effort to reform product and labor markets.
• The Greek banking sector appears to be sound and has thus far remained largely unaffected by the financial market turmoil. However, continued rapid credit growth and increasing presence in southeastern Europe (SEE), financed partly by wholesale funding, have increased banks’ exposure to credit, country, and liquidity risks. Appropriate steps have been taken to strengthen supervision and foster cooperation with SEE supervisors, but stress testing needs to be upgraded.
• The authorities are pursuing further fiscal consolidation with the goal of achieving a balanced budget by 2010. Given the high level of public debt and anticipated aging pressures, further adjustment thereafter to a surplus position is necessary. Revenue objectives for 2008–10 are ambitious; their achievement will require further revenue enhancing measures. Reforms to tax administration and expenditure management are being implemented, and will need to be broadened.
• A gradualist approach is being taken on pension reform. The reform agenda is narrow and the policy proposals are lacking full assessment of financing needs and cost savings. While staff sees a need for greater ambition, the authorities view their reform strategy as politically realistic.
• Structural reforms have been put in place, but impediments to higher productivity remain. Important initiatives are underway to improve the business environment. However, enhancing competition and reducing labor market rigidities remain challenges.
Be sure to read the Comments on the Greek Crisis below.