EU economy 2011 – the first six months

The world in 2011: a look at the year ahead
(Global Post) … The world economy will continue to falter as the Euro crisis deepens. No European country will default in 2011, thanks to the German taxpayer, but the single-currency will come under increasing political attack, becoming a major factor in European politics. The American economy will grow, but disappointingly, and unemployment will stubbornly hover at just under 10 percent. …
Times Topics: Greece
Over the last decade, Greece went on a debt binge that came crashing to an end in 2010, provoking the biggest crisis yet seen in the move toward European integration that began more than half a century ago.
Euro Crisis: Endangered Currency
First Greece — then Ireland, Italy, Spain and Portugal: The European common currency has come under pressure from large national debts and the effects of the global financial crisis, ultimately requiring a rescue package close to a trillion euros.
Explaining Europe’s Debt Crisis (video)
As fear continues to spread over the impact of the Greek debt crisis, more people are questioning how such a small country could impact markets around the world.

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THE HIDDEN COST OF SAVING THE EURO
ECB’s Balance Sheet Contains Massive Risks
(Spiegel) While Europe is preoccupied with a possible restructuring of Greece’s debt, huge risks lurk elsewhere — in the balance sheet of the European Central Bank. The guardian of the single currency has taken on billions of euros worth of risky securities as collateral for loans to shore up the banks of struggling nations.
21 May
IMF warns banks to tackle bad loans or risk fresh shock
(Emerging Markets) Central and eastern European banks must reduce their non-performing loan portfolios in order to unblock the credit system, the IMF’s regional head said this weekend
Giscard d’Estaing speaks out on eurozone debt crisis as Greek default fears mount
The private sector must play an equal role in cleaning up the eurozone debt crisis, former French president and architect of the European project Valéry Giscard d’Estaing, told Emerging Markets
(Emerging Markets) … But he dismissed fears that the Greek debacle threatened the single currency. “At this stage we need to stop questioning the strength of the euro on the basis of the incidents which affect the debt problems of some peripheral member states. The euro has not been – and is not – concerned.”
“We should return to the classic concept: negotiating the rescheduling of debt vis-à-vis public and private creditors under identical conditions,” he said.
One Wednesday Night economist comments: Giscard has no decision to make, no responsibilities, and no electorate to face. Under these conditions, it is rather easy to be generous with other people’s money.
16 May
BOC’S Carney: European Support Discussions Going Ahead
(MNI) Financial support of European countries in trouble will not be harmed, or affected, by the present scandal surrounding IMF head Dominique Strauss-Kahn, Bank of Canada Governor Mark Carney said Monday. … Carney said creation of a European bailout package is being addressed at various levels and is “bigger than one individual.”
He saw “no material effect” overall, on the world, from the Strauss-Kahn matter.
Several European countries, the countries of the G-7, the European Commission, as well as the IMF and other institutions, are presently continuing discussions about what to do with respect to problems of Greece, Ireland, Spain and perhaps other European countries, Carney said. These talks would go ahead and solutions would be reached.
IMF chief charged with attempted rape after ‘brutal attack’ at hotel

(The Independent) European bailout meetings cancelled and French politics left in turmoil after dramatic arrest on runway of New York airport  (The Economist) No he Kahn’t … Mr Strauss-Kahn’s arrest has left the IMF reeling. One insider called it a “disaster”. Although he had been expected to leave within a couple of months, Mr Strauss-Kahn, unless quickly exonerated, will now presumably be forced out far sooner.
That leaves the fund without a political heavyweight at the top in the midst of important negotiations with European policymakers over Greece’s debt crisis. Mr Strauss-Kahn was due to meet with Germany’s Chancellor Angela Merkel today and attend a crucial meeting of Euro group finance ministers on May 16th. At those meetings the fund’s boss was to make clear that the IMF would not go along with more dithering or fudges over Greece’s debt mess. Europe would have to come up with more money for Greece fast, or its debt will need to be reprofiled. Even if the fund sends another messenger, its heft in the euro debt mess is significantly diminished without a heavyweight at the top. (Financial Times) IMF head’s arrest hits debt talks
13 May
The Jekyll and Hyde economy

(The Economist) FROM one perspective the euro area is suffering an existential crisis as the sovereign-debt crisis goes from bad to worse. Early next week European finance ministers will talk about little else when they meet in Brussels. Not only will they have to sort out the planned bail-out of Portugal, the third country to require emergency funding, but they will also have to consider the predicament of Greece, which now looks as if it will require even more support next year or bite the bullet on restructuring its colossal debt.
But from another vantage-point the euro area is confounding the sceptics and doing remarkably well.
9 May
Portugal Opposition Vows To Go Beyond EU Bailout Measures
(Dow Jones)–Portugal’s main opposition party has vowed to take measures to cut public spending, including sharply shrinking the size of the government, which it claims go well beyond those being imposed by the European Union and the International Monetary Fund under a EUR78 billion bailout agreement.
Analysis: Effort aside, Europe fails to staunch debt crisis
(Reuters) – No matter how hard Europe tries, it just can’t get a grip on its sovereign debt crisis.
Since late 2009, when Greece’s vast budget and debt problems first materialized, the European Union has strived to come up with solutions, from fiscal adjustment programs to labor market reforms and financial bailout packages.
In EU terms, seldom have so many multi-billion-euro decisions been taken in so short a time under such pressure.
EU mulls lower rate plan for Greek debts
Executive arm considering reducing loan interest rates for Greece and Ireland amid fears over debt crisis.
Spartan: Disciplined, frugal. Greece: Certainly not Sparta
(Globe & Mail) 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.
Already bailed out once by the EU and the International Monetary Fund, and beset by strikes to protest austerity measures, Greece is again in the spotlight as the euro zone again looks at ways to support the embattled nation and markets increasingly speculate that the country will be forced to restructure its debt.
EU under pressure to slash ruinous Irish and Greek bailout bills
(The Guardian) Flurry of meetings and phone calls as eurozone finance ministers work to agree compromise deal to cut interest costs
5 May
Europe is running a giant Ponzi scheme
(FT) One of the pillars upon which the euro was established was the principle of “no bail-out”. When the sovereign debt crisis hit the eurozone this principle was ditched. As Greece, Ireland and Portugal were unable to service their unsustainable levels of debt, a mechanism was instituted to supply them with the financing necessary to service their obligations. This financing was provided, supposedly, in exchange for their implementing measures that would make their, now higher, debt burdens sustainable in the future. Yet the mode adopted to resolve the debt problems of countries in peripheral Europe is, apparently, to increase their level of debt. A case in point is the €78bn ($116bn) loan to Portugal. It is equivalent to more than 47 per cent of its gross domestic product in 2010, possibly increasing Portugal’s public debt to about 120 per cent of GDP
18 April
Germany puts off day of reckoning over rescues
Until Europe’s banks are cleaned up, the German-devised solution for the eurozone amounts to little more than a recipe for never-ending financial support for the area’s weakest states
15 April
Europe’s debt crisis — Piggybacking
While Germany is footing much of the bill for the euro-area bail-out, it may be saving its own banks too
(The Economist) THE announcement on April 6th that Portugal will become the third euro-area country to receive a bail-out was not well received in Germany. As the largest euro-area country, it is contributing 20% or €52 billion ($75 billion) to the bail-out funds of the three profligate countries, mostly via the euro area’s European Financial Stability Facility.
Meanwhile Spiegel reports that Right-wing populism has arrived in Finland. The True Finns stand to gain close to 20 percent of the vote in Sunday’s elections on an anti-Islam, anti-Europe platform. That could be bad news for Portugal. Why Elections in Finland Could Doom Portugal’s Bailout
28 March
Euro economists expect Greek default, BBC survey finds
Greece is likely to default on its sovereign debt, according to the majority of respondents to a BBC World Service survey of European economists.
Two-thirds of respondents predicted a default. However, most thought the euro would survive in its current form.
3 March
Hungary Austerity Plan Is Still a Promise
(WSJ) The Hungarian government’s austerity plan presented this week seems as elusive as the gift that, according to lore, King Matthias of Hungary once received from a maiden.
23 February
Madman Is Wanted to Fill Europe’s Job From Hell: Matthew Lynn
(Bloomberg) … surely any job would be preferable to running the ECB. Greek finance minister, for example. Or running the public relations unit for BP Plc on the Gulf coast. Either would be better than trying to sort out the mess the euro has become.
Van Rompuy tries to soothe the Eurozone
(Foreign Policy – the Multilateralist) Herman Van Rompuy, the head of the European Council, is headed to eastern and central Europe in an effort to counter the impression that Paris and Berlin have already sewed up a Eurozone reform package–the so-called “Competitiveness Pact”–with very little input from smaller members.
6 February
More storms in store for debt-ridden nations
(Globe & Mail) … for those suffering from dangerous temporary euphoria about the state of the industrial world in general and the euro zone in particular, I have a surefire antidote: a quick chat with veteran German money manager Claus Vogt.
The euro, as we know it, will be gone in perhaps three years [italics added], Mr. Vogt, managing director of Aequitas Capital Partners and co-author of The Global Debt Trap, says from his office in Berlin. “The next crisis is already brewing. I may be too early. Maybe it lasts five years, but really no longer. I see no way to hold this sick contract together much longer.”
He sees only three ways out of the crisis: severe austerity; outright debt defaults; or cranking up the money-printing presses.
31 January
An Economic Government for the Euro Zone? Merkel’s Plan Could Transform the European Union
(Spiegel) German Chancellor Angela Merkel wants to stabilize the euro through a “pact for competitiveness” that would force EU members to coordinate their national policies on issues like tax, wages and retirement ages. The plan would transform the EU if it becomes reality, but resistance will be fierce — including from within Merkel’s own governing coalition.
20 January
Europe: Not so fast
A guide to the various debates surrounding euro governance
(Charlemagne’s Notebook, The Economist) IN DECEMBER the leaders of countries using the euro declared that they stood “ready to do whatever is required to ensure the stability of the euro area as a whole”. One month on, they are plainly not ready to agree on what needs to be done. This week’s meetings of finance ministers from the euro area, and then of the European Union, broke up without agreement.
The latest round of bickering may yet lead to the crystallisation of a new, elite club comprising the six euro-area members with a AAA credit rating: Germany, France, Austria, the Netherlands, Finland and Luxembourg. … the questions are many, and interconnected.
Here are just a few of them: are Europe’s bail-out funds big enough? Should they do more than save countries at the point of collapse? Should they, specifically, take over the European Central Bank’s emergency bond-buying role? Are bailed-out countries paying too punitive an interest rate? Will Greece, in particular, need to restructure its debt even after its bail-out? If so, can Europe’s banks take the hit?
11 January
‘Europe Needs Growth to Prevent a Collapse of the Euro’
(Spiegel) Europe, says star economist Nouriel Roubini, needs to take immediate action to shore up the euro. In an interview with SPIEGEL, Roubini said Germany must provide more money to defend the common currency and allow the European Central Bank to loosen monetary policy. Otherwise, disaster could be looming.
6 January
China Promises Support for Euro Zone: Beijing pursues European charm offensive
Li Keqiang, China’s deputy premier, makes repeated promises while in Madrid at the start of a European tour to buy Spanish sovereign bonds and help eurozone emerge from its debt crisis
3 January
France and Germany Split over Plans for European Economic Government
(Spiegel) Both France and Germany want an economic government for Europe. The only problem is they have completely different things in mind. … France would prefer to see the European Council, which comprises the heads of state and government of the EU’s member states, turned into a kind of economic government. … The Germans are focused on completely different things. Their preference would be to see the current rescue fund replaced by the so-called European Stability Mechanism in 2013. According to this arrangement, in return for any help, cash-strapped countries would have to subject themselves to a strict cost-cutting regimen.
Paul Krugman: The Euro and the European Project
… The point is to deliver a series of economic integration plans that do double duty: they’re economically productive, but they also create “de facto solidarity”, moving Europe closer to political union.
For 60 years, this strategy has been highly successful. Europe is one of the great, inspiring stories of the modern world, maybe of all time: peace, prosperity, and democracy flourishing where once there were minefields and barbed wire.
But: the strategy depends on each move toward economic integration being both a political symbol and a good economic idea.
2 January
European debt markets ‘face second credit crisis’
(The Telegraph UK) European debt markets could be hit by a second credit crisis within months as fears grow over the huge volume of new bonds that must be sold by governments and banks in 2011

7 Comments on "EU economy 2011 – the first six months"

  1. Antal (Tony) Deutsch December 29, 2010 at 5:28 pm · Reply

    It is difficult to disagree with Krugman on this one [Euroskeptics]. Would it be so difficult for him to give credit to the late Milton Friedman, the most prominent public US-based Eurosceptic? The Mundell referred to in the article is the only Canadian ever to receive the Nobel in Economics. Tony

  2. Antal (Tony) Deutsch January 11, 2011 at 3:18 pm · Reply

    Roubini’s message translates briefly to 1. let the Germans pay more taxes, so that the Greeks, Portuguese etc can pay less, and 2. let German wages rise, so that they consume more but export less on account of having lost their competitive edge, so that 3. the Euro can depreciate against other currencies, thus Europeans could buy fewer Taiwanese TV-sets and bottles of Scotch. All of which would shift adjustment problems onto Taiwan and the UK, which is the beggar-my-neighbour policy that led to the breakdown of international trade in the Thirties. Even if this package were salable, which it is not, would saving the Euro be worth a substantial reduction in global output?

  3. Gordan Finch May 10, 2011 at 11:34 am · Reply

    Greece’s unpayable debt is dismantling the Euro as a single currency; Germany is unlikely to fund its failure again and other countries will cotton on. Greece has substantial Real Estate the IMF should consider a sale of some of its islands a realistic solution to Greece’s debt. However how is it so many countries have such huge debts; some readers will know the failure of the financial markets was down to one company AIG a subsidiary of Zurich Financials Services? This company’s fraudulent activity destroyed the wealth of millions of individuals; thousands of banks companies and most countries debts are the result of the failure of ZURICH FINANCIAL SERVICES.

    Now majority owned by the US GOVERNMENT who bailed it out with hundreds of €Billions. Zurich Financial Services are a continuing menace to the Dollar and stability of the Euro the European Union and World financial markets. Hopefully the US will break up this evil myriad hydra of deception and fraud, after its paid back the bailout €billions it owes. Gordan finch

  4. Guy Stanley July 15, 2011 at 10:54 am · Reply

    Re: Can Europe Become The New Land Of Milk And Honey?
    This is kind of a cool analysis. The problem with it is that the world he is discussing is one in which the poor work hard and are rewarded, not forced to work still harder despite rising productivity, capital is available for worthy projects and the projects are not blown away by a system crash, and the leaders are not in the clutches of the financiers who are rigging the game for their own benefit. The first part of the piece is even more disturbing: Europe’s loss of purpose. The EU is so far an effective answer not just to European security but also to global security. Its disintegration would signal that the ruin of the west has indeed begun. Guy

  5. Lawrence July 18, 2011 at 10:35 pm · Reply

    Sovereign debt is certainly nothing new, nor is it particularly a Greek speciality. Finance markets are stricly amoral and thus not really concerned with people. Lack of real incentive to help people be less reliant upon the state i.e fostering of entrepreneurial spirt by removing excessive bureaucracy and giving tax breaks to new business, cetainly did not help either. Selling off the family silver aint going to bail anyone one out at this stage. But I doubt that debt restructuring is an option as Greece is in the Euro. Probably the only long term solution would be greater political integration within the EU as per the USA – but that aint going to happen either. Or leave the EU, but then Greece would really be at the mercy of the sharks. Or ask the Chinese for long term aid in restructuring, which if the shit really hits the fan, will have to happen anyway. Good luck Greece, because if you go, the whole pile of dominos goes too, until Beijing stack them all up again, on their terms.

  6. Darren July 18, 2011 at 10:53 pm · Reply

    If it is not the bankers socializing their debts and getting the public to pay for them, whilst they take the profits in the good times, it is people like @eboy, telling you that Greece should have been allowed to fail because that is what is better for the market … of course he doesn’t care a fig for the people of Greece or the UK who are having to bail out the banks and creating poverty for everyone else.

    Wake up, the cheap credit bubble, 30 years in the making, deregulated to the hilt so that no-one knows how the money is being made – e.g. Worldcom and Enron, Madoff or sub prime, bailing out the bankers with public cash and making the public pay for it – are criminal activities to keep wealth in the hands of the few and take it from the masses.

  7. Antal (Tony) Deutsch July 22, 2011 at 10:50 am · 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

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