Friday, September 30, 2011

History of statistics that failed to add up

Financial Times
September 30, 2011

Until recently Greek statistics were viewed with derision by the country’s eurozone partners.

Officials still joke about a large upward revision of gross domestic product in 2005, in which the then head of the statistical service claimed to have captured a large chunk of the black economy, “including the sizeable contribution of gambling and prostitution”.

According to revised budget data by Eurostat, the European Union statistical agency, Greece would have failed even to gain admission to the eurozone in 2001, as its deficit exceeded the upper limit of 3 per cent of gross domestic product.

The discovery of another deficit fudge triggered the country’s current crisis, when the newly elected Socialist government revealed a double-digit deficit in October 2009 – almost three times the previous forecast.

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Sarkozy pledges to fast-track eurozone rescue as slump fears grow

Guardian
September 30, 2011

French president Nicolas Sarkozy is to hold urgent talks in Germany with chancellor Angela Merkel on speeding up the rescue plan for the euro.

Sarkozy said on Friday the talks would take place within days as uncertainty about the eurozone's stability and worries about deepening recession returned to European markets.

Declaring after talks with Greek premier George Papandreou that "a failure of Greece would be a failure for all of Europe", the French president praised Athens for its determination to meet its commitments and said: "There can be no question of dropping Greece."

His comments came as European leaders turned up the heat on Slovakia to approve the enhanced eurozone rescue fund amid growing fears it could yet scupper the scheme.

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Strikes hamper Greek rescue effort

Financial Times
September 30, 2011

Wildcat strikes in Greece have prevented the country’s bureaucrats from finalising next year’s vital budget figures, potentially holding up this month’s release of sorely needed fiscal aid and capping an ignominious quarter for global markets.

Despite a tentative improvement in sentiment over the past week, mounting fears over a potential Greek default and the tepid pace of the global economic recovery led to one of the worst three months on record for financial markets.

The S&P 500 was on Friday set for a drop of 5.7 per cent in September and a decline of 12.9 per cent over the third quarter, its worst performance since the final three months of 2008.

The FTSE All World index was also set for its worst decline since the three months following Lehman Brothers’ collapse in September 2008. It entered official bear market territory in September, shedding more than a fifth from its high in May.

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Greece: This cannot end well

by Ben Rooney

CNN Money

September 30, 2011

The debt crisis in Greece cannot end well.

That seems to be the general consensus among investors, economists and academics.

Even though global financial markets showed some resilience this week, the tone remains cautious as the underlying problems haven't changed.

"There is no way to avoid pain for Greece," said Holger Schmieding, chief economist at Berenberg Bank. "The austerity is painful. Further painful structural reforms are on their way."

There are essentially two options: Greece can continue to cut spending and raise taxes in a painful attempt to convince creditors that it can change its ways. Or, the country can admit defeat, default on its debts, and hope for the best.

Euro area leaders have said repeatedly that a default is off the table, arguing that such an outcome would have severe and unknowable consequences for the euro currency and the global financial system.

But there is also a growing recognition that the status quo is not working.

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Greeks told protests could derail bail-out

Financial Times
September 30, 2011

The head of Greece’s statistical agency has lashed out against a wildcat strike by employees, warning the protest could derail the approval by international lenders of the next tranche of the country’s bail-out loan.

Andreas Georgiou, chairman of Elstat (Hellenic Statistical Agency), told the Financial Times on Friday that he could not provide the figures needed to finalise the 2012 budget because of the walk-out.

“We will miss tonight’s deadline for sending final updated debt and deficit figures for 2010 to Eurostat [the EU statistical agency] because I and my team can’t get into the building to finish the job,” he said.

He said the figures were urgently needed for the troika to recalibrate the draft budget before it goes to parliament on Monday, “but it will take another two to three days of work to complete them”.

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Greek PM presses EU leaders for new bailout tranche

BBC News
September 30, 2011

The Greek prime minister has been having a day of talks with fellow EU leaders on a new bailout tranche Greece needs to avoid bankruptcy in October.

George Papandreou met French President Nicolas Sarkozy in Paris after talks with European Council chief Herman Van Rompuy and others in Warsaw.

International inspectors are in Athens to decide whether Greece should receive the 8bn euros (£6.9bn; $10.9bn).

Protesters forced the rescheduling of a meeting on Friday morning.

Anger continues over austerity measures including a new property tax, and demonstrators have publicly burnt copies of emergency tax notices outside a tax office in the country's second city, Thessaloniki.

Meanwhile, the expansion of a general bailout fund for the eurozone looks on track for approval.

Jean-Claude Juncker, head of the eurozone group of finance ministers (Eurogroup), predicted all of the euro states would have endorsed the expansion by mid-October.

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'Europe Can Breathe Easier' after Crunch Vote

Spiegel
September 30, 2011

On Thursday, Chancellor Angela Merkel showed once again that she could deliver the goods when she achieved a convincing parliamentary majority in a crucial vote on expanding the euro rescue fund. German commentators say the vote is a step in the right direction but warn that further obstacles lie ahead.


It was one of the most anticipated parliamentary votes of the year. If it had gone wrong, it could have cost Angela Merkel her chancellorship.

In the end, Merkel managed to pull it off -- as she has so often in the past. The Bundestag passed the expansion of the euro backstop fund, the EFSF, with 523 votes in favor, 85 against and three abstentions.

The result meant that Merkel could breathe a sigh of relief. There had been concern that renegades within her center-right coalition could force the chancellor to rely on opposition votes to pass the legislation. Had that happened, her power would have been severely curtailed.

In the end, however, 315 parliamentarians from Merkel's conservatives and from her junior coalition partners, the Free Democrats, voted in favor of the EFSF expansion. If the total had been below the so-called "chancellor's majority" of 311, it would have meant that Merkel was reliant on opposition votes, indicating she could no longer rely on the support of her own coalition.

On Friday, the Bundesrat, Germany's upper legislative chamber, also approved the EFSF expansion.

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Η φορολογία της ακίνητης περιουσίας

του Στέφανου Μάνου

Καθημερινή
30 Σεπτεμβρίου 2011

Ο κ. Πάγκαλος έθιξε ένα ζήτημα που αφορά πάρα πολλούς πολίτες. Εξήγησε, σε τηλεοπτική του συνέντευξη, πως απέκτησε από κληρονομιά σημαντική ακίνητη περιουσία που, ενώ δεν του αποδίδει εισόδημα, τον υποχρεώνει να πληρώσει το νέο χαράτσι του κ. Βενιζέλου. Είναι ενδιαφέρον ότι ο κ. Πάγκαλος, ναρκισσευόμενος ως συνήθως, δεν σκέφτηκε και όσους άλλους βρίσκονται στην ίδια ή και χειρότερη θέση. Περιορίστηκε στην εξιστόρηση της δικής του υπόθεσης ως να ήταν μοναδική. Δεν φάνηκε να τον απασχολούν οι απλοί άνθρωποι, για τους οποίους η απειλή φυλάκισης είναι πραγματική.

Πριν από 18 μήνες έγραψα στην εφημερίδα «Εστία» για τις οδυνηρές συνέπειες του παρανοϊκού ΦΜΑΠ με συντελεστή 2%, έμπνευσης του κ. Παπακωνσταντίνου. Για τον ΦΜΑΠ δεν μίλησε ο κ. Πάγκαλος επειδή προφανώς δεν έχει λάβει ακόμη το σχετικό ειδοποιητήριο. Η κατοχή ακινήτου σε περιοχή υψηλής αντικειμενικής αξίας δεν είναι δηλωτική της φοροδοτικής ικανότητας του ιδιοκτήτη. Αν η αγορά είναι πρόσφατη, τότε προφανώς ο ιδιοκτήτης μάλλον έχει τέτοια ικανότητα. Αν όμως είναι παλαιά, τότε η φοροδοτική ικανότητα του ιδιοκτήτη μπορεί να βρίσκεται σε πλήρη αναντιστοιχία με τον επιβαλλόμενο ΦΜΑΠ.

Μπορεί οι υπηρεσίες του υπουργείου Οικονομικών να νομίζουν ότι με τη φορολογία της μεγάλης ακίνητης περιουσίας θα πιαστούν «οι έχοντες και κατέχοντες» που φοροδιαφεύγουν. Για να συγκαλυφθεί δηλαδή η ανικανότητα τους να κάνουν στοιχειωδώς καλά τη δουλειά τους δεν διστάζουν να επιβάλουν έναν νόμο διώκτη ξένων επενδύσεων και απολύτως άδικο απέναντι σε πάρα πολλούς φορολογουμένους. Θα ήταν πολύ πιο πρακτικό, αλλά και δίκαιο και έντιμο να αναζητηθούν οι πρόσφατες αγορές ακινήτων υψηλής αξίας και να ζητηθεί από τους αγοραστές να δικαιολογηθεί η πηγή των χρημάτων.

Τελείωνα το άρθρο μου με μια συγκεκριμένη πρόταση που ανταποκρίνεται σε παρόμοια ρύθμιση που πιστεύω ισχύει στη Γαλλία όπου και εκεί έχουν φόρο κατοχής ακίνητης περιουσίας. Ο φόρος ακίνητης περιουσίας σε κάθε συγκεκριμένη περίπτωση περιορίζεται τόσο ώστε το άθροισμα φόρου εισοδήματος και φόρου ακίνητης περιουσίας να μην υπερβαίνει το 50% του δηλούμενου εισοδήματος.

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Barroso Calls for More Power for EU Institutions

Spiegel
September 30, 2011

European Commission President Jose Manuel Barroso has said in an interview that the EU's institutions need to be strengthened to stabilize the euro zone, arguing that national governments can't be trusted to take determined action. Meanwhile, former German Finance Minister Peer Steinbrück says it's time to openly admit that Greece is practically bankrupt.


He might be "very happy" that the German parliament approved the expansion of the euro rescue fund on Thursday, but European Commission President Jose Manuel Barroso appears far from happy with how the European Union is currently functioning.

In a hard-hitting interview with Friday's edition of the German daily Süddeutsche Zeitung, Barroso warned that the EU was in its "deepest ever crisis" and said that the bloc needed a more closely coordinated economic policy in order to stabilize the euro zone and the entire EU.

He called for more power for the EU's institutions, arguing that it was an "illusion" to think that the euro zone's economic policy could be coordinated just by the European Council, the institution that comprises the leaders of the EU's 27 members, which meets twice a year.

He said that setting rules for a stable euro zone could not only be left to the member states. "That will never work," he said, explaining that national governments "always try to negotiate." Barroso said there was a good reason why there were independent institutions such as the European Commission -- the EU's executive body -- and the EU's Court of Justice.

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Euro: Greeks don’t want a drachma out of a crisis

Euronews
September 30, 2011

While the Greek government’s austerity measures become ever tougher in response to the troika’s demands, so discontent in Greek society continues to grow.

Speculation is rife about the country going bankrupt, or leaving the euro zone.

But this edition of Reporter finds out that not everyone in Greece is lining up to abandon the good ship ‘euro’ just yet.

See the Video

HSBC: «Τι θα γινόταν αν η Ελλάδα έφευγε από το ευρώ;»

Το Βήμα
30 Σεπτεμβρίου 2011

Αν η Ελλάδα αποφάσιζε την έξοδό της από την ευρωζώνη κάτι που θα συνεπαγόταν και την έξοδό της από την Ευρωπαϊκή Ένωση, οι συνέπειες σύμφωνα με την HSBC Bank plc, θα μπορούσαν να κωδικοποιηθούν ως εξής:

1. Η ονομαστική αξία του ενεργητικού και παθητικού του τραπεζικού συστήματος θα επανυπολογίζονταν εκ νέου προκειμένου να υποτιμηθεί το νόμισμα.

2. Θα είχαμε ελέγχους των κεφαλαίων τόσο λόγω του τεράστιου ελλείμματος τρεχουσών συναλλαγών, όσο και για να περιοριστούν οι ημερήσιες αναλήψεις χρημάτων προκειμένου να αποτραπεί η κατάρρευση του τραπεζικού συστήματος, το οποίο δεν θα έχει πλέον πρόσβαση στην ρευστότητα της ΕΚΤ.

3. Η χρεοκοπία δεν θα εξάλειφε την ανάγκη για δημοσιονομική προσαρμογή, αφού το ισοζύγιο θα συνεχίσει να είναι ελλειμματικό και ως εκ τούτου θα πρέπει να υπάρξει ακόμα μεγαλύτερη λιτότητα από αυτήν που προβλέπει το σχέδιο της τρόικας. Υποθέτοντας πως κάτι τέτοιο είναι πολιτικά ανέφικτο, η κεντρική τράπεζα θα αναλάμβανε την νομισματοποίηση του χρέους, δηλαδή θα τύπωνε χρήμα.

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Greek banks face nationalization if haircut too severe

by George Georgiopoulos

Reuters

September 30, 2011

Some of the biggest of Greece's debt-laden banks may be headed for nationalization, particularly if debt restructuring becomes more aggressive and investors continue to dump their shares.

Hostage to about 40 billion euros of toxic government debt on their books in the form of deeply discounted bonds, their fate is inextricably tied to the outcome of the crisis, which many analysts feel will end with a Greek default.

Private creditors, including Greek banks, have agreed to take a 21 percent "haircut" -- a loss on the face value of the debt they hold -- as part of a second, 109 billion euro bailout deal agreed by Greece and its international lenders in July.

But a consensus is building among economists, politicians, and investors that without a bigger, 50 percent haircut, Greece will still stumble under its 350 billion euro debt load and lose its emergency funding.

"The prospect of a larger haircut has got bigger. Certainly the CDS market sees a larger than 90 percent probability of such an event happening within 5 years," said analyst Niall O'Connor at Credit Suisse in London. "It is possible and could happen within a year, I would not rule it out."

On Tuesday, German and French government advisers joined the debate, arguing that Athens needs to halve its debt burden and calling for more support to recapitalize banks with large exposures to Greek bonds.

Greek media reported on Wednesday that the discussion over the size of bondholder losses has pushed more investors into agreeing to the 21 percent haircut in which they would swap bonds maturing up to 2020 with safer, longer-maturities.

Bankers have also suggested they would be open to another round of write offs later if the first amount is insufficient to stop a default that would trigger much deeper losses.

If that speculation becomes reality, the impact on banks' equity base would be too big to repair in a depressed market and lenders would have to turn to a state Financial Stability Fund -- and nationalization -- or collapse.

"The banks would (need to) be immediately recapitalized and obviously nationalized because the owners would not be able to supplement the capital gap," said Yannis Papantoniou, a former Greek finance minister and the architect of the Mediterranean state's entry into the euro.

"So the state should come in."

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Κώστας Μητρόπουλος

Τα Νέα
29 Σεπτεμβρίου 2011

Euro `Best Positioned' for Next 6-12 Months

Bloomberg
September 30, 2011

Kelvin Tay, chief investment strategist at UBS Wealth Management, discusses his recommendation for the euro. Tay, who speaks from Singapore with Linzie Janis on Bloomberg Television's "First Look," also talks about the U.S. economy, Greece's debt crisis and investment strategy.



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In European Crisis, Experts See Little Hope for a Quick Fix

New York Times
September 29, 2011

It has happened time and again in recent months as Europe’s debt crisis has played out. Stocks stage a strong comeback on expectations that a solution has been found. Then they quickly resume their decline as hopes dissipate, leaving investors puzzled and frazzled.

What is going on?

The problem, say close watchers of both the subprime financial crisis in 2008 and the European government debt crisis today, is that many investors think there is a quick and easy fix, if only government officials can agree and act decisively.

In reality, one might not exist. A best case in Europe is a bailout of troubled governments and their banks that keeps the financial system from experiencing a major shock and sending economies worldwide into recession.

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Το κόστος της αφασίας

του Ι.Κ. Πρετεντέρη

Τα Νέα

30 Σεπτεμβρίου 2011

Ήδη από το φθινόπωρο του 2009, όλοι ξέραμε και όλοι συμφωνούσαν ότι η ουσία της δημοσιονομικής εκτροπής και της κρίσης χρέους ήταν η αύξηση των δημοσίων δαπανών: είχαν σχεδόν διπλασιαστεί από το 2004 έως το 2009.

Αφού αυτή ήταν η αιτία του προβλήματος, η λύση του προκύπτει σχεδόν αυτονόητα: έπρεπε να περιοριστούν δραστικά οι δημόσιες δαπάνες που είχαν εκτροχιαστεί. Εως εδώ, δεν νομίζω ότι μπορεί κανείς να διαφωνεί.

Μπορούν, όμως, να περιοριστούν οι δημόσιες δαπάνες χωρίς περιορισμό του μισθολογικού κόστους στο Δημόσιο, χωρίς ουσιαστική συρρίκνωση του δημόσιου τομέα και χωρίς περιορισμό των δημοσίων υπαλλήλων; Λυπάμαι αλλά δεν γίνεται.

Τι θα έκανε, λοιπόν, μια οργανωμένη κοινωνία; Θα καθόταν εδώ και δυο χρόνια να καταρτίσει ένα σοβαρό σχέδιο περιορισμού των δημοσίων δαπανών κάνοντας διάλογο με τους ενδιαφερόμενους αλλά επιδεικνύοντας αποφασιστικότητα ως προς τον στόχο που έχει τεθεί.

Τίποτα από αυτά δεν συνέβη. Αποτέλεσμα; Δυο χρόνια αργότερα βρισκόμαστε στο σημείο εκκίνησης - αν εξαιρέσει κανείς τη γενική περικοπή των μισθών και των συντάξεων.

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More of the Same Won’t Save Europe

New York Times
Editorial
September 29, 2011


The German Parliament’s move to expand the euro-zone bailout fund on Thursday is welcome, but the European debt crisis is no closer to resolution than it was two months ago. Even with Germany’s roughly $287 billion increased contribution, the fund is still too small to provide more than a few days of calm to jittery markets.

The big picture, in fact, has gotten much worse. Greece’s indebtedness is growing, European bank balance sheets are shakier and investors are increasingly skeptical that Europe has the will to stabilize shaky credit and stock markets. Also conspicuously lacking is any clear plan for generating the economic growth needed to begin paying down those growing debts.

Instead, heavily indebted nations are yielding to pressure to embrace more of the austerity medicine that will only make them sicker. On Tuesday, Greece voted to impose a steep new property tax. On Wednesday, the European Parliament tightened the noose by approving new financial penalties for countries running high deficits.

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Greek Crisis Reveals EU's Tragic Flaw

by Stephen Fidler

Wall Street Journal

September 30, 2011

In his influential 1910 tract "The Great Illusion," the writer Norman Angell argued that nations were so financially and economically interdependent that war would damage the winner as much as the loser. Under these circumstances, he argued, no nation would be foolish enough to start one.

His analysis about the economic catastrophe of war would prove correct; his conclusion about government decision-making was tragically wrong. Four years later, the countries of Europe would join in horrific conflict.

The warnings about the economic consequences of a Greek exit from the euro zone—which could follow from a default on its debts, but isn't an inevitable consequence of one—suggest it is an outcome that rational policy makers would seek to avoid.

It would be "a financial and economic disaster not only for Greece, but also for 16 continuing euro-area member states," argued Willem Buiter, Citigroup's chief economist, in a research note this month. It would trigger "bank runs in every country deemed, by markets and investors, to be even remotely at risk of exit from the euro area." Investors and lenders to these countries would, in effect, go on strike. The effects would reverberate around the world.

Others estimate that a withdrawal by Greece or any other weak economy could cost the country 25% or more of gross domestic product in the first year. Even if a strong economy left, the price it would pay would be huge.

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The eurozone crisis: a German point of view

by Stephanie Flanders

BBC News

September 30, 2011

Reading the British or American press these days, the villains of the euro crisis are easy to spot: Germany and the European Central Bank (ECB).

If only they would stop holding the single currency to ransom, say the armchair strategists, get with the programme, and write a blank cheque for the euro, that will finally silence the markets' fears.

Then, so the argument runs, the crisis will be over, and that cheque might never be cashed.

Well, perhaps.

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Caught in the Labyrinth of Greece's Debt Restructuring

by Richard Barley and Simon Nixon

Wall Street Journal

September 30, 2011

The euro zone now looks likely to get its expanded bailout fund, and Greece looks likely to get the next tranche of its first rescue package. But a new front in the euro crisis is opening up: what to do if Greece's second bailout package, worth €109 billion ($147.8 billion) and agreed to in July, isn't enough.

That risk is real. But with Greece reaching the limits of austerity, at least in the near-term, there are only two options for filling any shortfall. Either euro-zone governments and the International Monetary Fund must dig deeper into their pockets, or Greece has to unpick its deal with bondholders to secure more debt relief.

Some argue Greece should seize the opportunity to impose bigger losses on bondholders. Greece has about €360 billion of debt, equivalent to 165% of 2011 GDP. The July 21 deal aims to swap €135 billion to €150 billion for new bonds worth 79% of the face value of the old ones. But that will still leave Greece with a debt-to-GDP ratio of 150%, according to Barclays Capital estimates. That looks unsustainable.

To reduce debt to the euro-zone average of 80% of GDP, would mean writing down all Greek debt, excluding T-bills and IMF loans, by 57%, Citigroup says, or €184 billion.

Greek bonds already trade at 30 cents to 40 cents on the euro, suggesting deeper restructuring is in the price.

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Keep the fire burning: Why Germany seems not to want a quick fix for the euro crisis

Economist
October 1, 2011

To hear Germany say no to fiscal stimulus, no to boosting the euro zone’s rescue fund, no to joint Eurobonds, one begins to wonder: does it really want to resolve the euro zone’s crisis? Of course we do, most Germans would reply. Is not the chancellor, Angela Merkel, the first to declare that “if the euro fails, Europe will fail”? Is Germany not the main provider of rescue loans to Greece, Ireland and Portugal?

All this is true. Yet Mrs Merkel seems to lack a sense of urgency. Despite the world’s calls for action, she does not believe in bold strokes—be it letting Greece default, or issuing Eurobonds to mutualise governments’ debt. Only a slow, step-by-step approach will work. In other words, the pain, austerity and market turmoil will go on for the foreseeable future.

German politicians are constrained by a complex federal system, a sceptical public, messy coalition politics and jealous institutions such as the constitutional court. Mrs Merkel struggled to persuade members of her squabbling coalition to vote for an expansion of the euro zone’s bail-out fund in parliament this week. But listen carefully to senior officials and the view is that not only is it impossible to stop the crisis quickly, but trying to do so is harmful. Eurobonds may provide relief in the short term, they say, but this would divert effort from the real cure of reforming public finances and uncompetitive economies; the illness might then re-emerge in more virulent form.

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Europe Debt Crisis, Greece Default, U.S. Economy

Bloomberg
September 29, 2011

Vincent Truglia, managing director at Granite Springs Asset Management, Douglas Borthwick, managing director and head of FX trading at Faros Trading, and Henley Smith, chief investment officer at Commonwealth Asset Management, talk about Europe's sovereign debt crisis and the possibility that Greece will default on its obligations. Truglia, Borthwick and Smith also discuss the U.S. economy. They speak with Michael McKee on Bloomberg Television's "Taking Stock."



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Thursday, September 29, 2011

Merkel enjoys triumph in bailout vote, but how long will it last?

Guardian
September 29, 2011

Victory for Angela Merkel in the crunch parliamentary vote on increasing the powers of the euro bailout mechanism could prove shortlived as Germany comes under increasing pressure from EU officials to deliver fresh proposals to give the rescue fund a supercharged boost.

German public opinion is firmly against any "leveraging" of the European Financial Stability Facility and both Wolfgang Schäuble, the German finance minister, and Philipp Rösler, the economics minister, set their stalls out against any such extension as the Bundestag voted 523 to 85 to increase the EFSF's available funds to €440bn (£382bn). The vote approves the increase of Germany's guarantees from €123bn to €211bn. Schäuble said any further increase, mooted after last weekend's IMF meeting in Washington, was "out of the question".

Behind the scenes, however, officials are discussing at least three options for leveraging the fund to help head off the threat of potentially catastrophic defaults across the eurozone and these talks are expected to accelerate now that Germany has approved the 21 July decision to give the EFSF enhanced powers.

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Aris Kefalogiannis: 'Olive oil is Greece's liquid gold'

Guardian
September 29, 2011

Before Aris Kefalogiannis discovered olives, he was an Olympian water polo player. He loved the sport but it was the stamina and team work that contributed to the team's success that would serve him best. For selling Greek olives, whether in Greece or abroad, has not been easy.

The eco-minded entrepreneur, who came up with his business idea while studying in the UK, has needed to be resilient to keep his head above the water in a country that has found itself at the centre of Europe's spiralling debt crisis. Even though many believe that Greece is heading for bankruptcy and default, the speciality food giant, Gaea, is doing remarkably well.

As one of the nation's most recognisable brand names abroad, and enjoying growth rates that would make most EU governments blanch, Gaea's success has raised the tantalising question of whether food staples such as olives could help Greece's financial recovery.

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Debt swap needed to cauterise Greece

Financial Times
Editorial
September 29, 2011


The German parliament’s acceptance of a refurbished eurozone rescue fund makes it very likely that the package of measures agreed by the currency area’s leaders in July will be implemented. But the game has moved on, and it is a good sign that the main decision-makers are discussing what more is needed.

The answer is two things above all: to leverage the European financial stability facility up by enough weight classes to impress markets; and to exact deeper private sector sacrifices in the planned exchange offers of Greek government debt. While the former is controversial, sentiment seems to be tilting in its favour. A bigger battle is about to erupt over the latter.

The idea of “private sector involvement” in the second Greek rescue has been riddled with a contradiction. Making private owners of the bonds in question help to make things easier for Greece is incompatible with averting a sovereign default – if “default” means anything but honouring original terms on time and in full, these are incompatible. But the goal should be another: to ease Greece’s burden while making investors no worse off in real economic terms than they are now. This is possible: the market discount on Greek bonds reveals that investors know their prospects are awful.

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We have the Troika we deserve!

Athens Review of Books
Editorial
October 2011


Greece, two years after the agreement on the conditionality program, is closer to bankruptcy than ever, while at the same time all economic initiative is simply frozen. The responsibility of the government that has procrastinated and not done what it had to do for months, is obvious, as is the responsibility of the opposition that undermined in every possible way the fiscal consolidation efforts and the structural reforms. But a substantial responsibility also lies with the troika. Not only towards the European (mainly) taxpayers, whose money it administers, but also towards those Greek citizens who were hoping that the troika would act as a type of catalyst to rid the country from a state-sponsored, vicious and corrupt governance system. This system of governance was fed with European money and it grew to marginalize the healthy and productive powers of the country, in every aspect of the economic, social and intellectual life of the country, during the past thirty years.

Which were the main mistakes of the troika?

Regarding economics, the fundamental mistakes were the duration of the program, the balance between tax increases and expenditure cuts and the fact that the money of the European, mainly, taxpayers was used to keep financing consumption, rather than investment. The assertion that the deficit was so big that it had to be cut slowly during a four year period turned the program into a Chinese torture that multiplied uncertainty and that led to a further increase in the public sector debt which was allowed to soar to uncontrollable levels. With what logic could the bankrupt Greek state justify primary deficits that financed consumption of almost 20 billion Euros in 2010 and 2011? And since the main aim of the program was to restore confidence, why had this to happen in 2012 rather than in 2010? In a country that had the lowest investment rate among all Southern European countries (30% less as a percentage of GDP than Spain and Italy) and the largest extent of overconsumption, the troika did not finance investment but sustained excessive public consumption.

At the same time, and in spite of the fact that the troika publicly argued for the need to emphasize expenditure cuts rather than tax increases in order to reduce the deficit, it accepted the opposite policy that the government pursued. Repeated increases in tax rates, given the corrupt tax-collecting mechanism and the widespread social acceptance of tax-evasion, strangulated the productive private economy, supported the relative competitiveness of the systematic tax-evaders and undermined the productive and competitive law-abiding companies.

Finally, the way the privatization program is advanced is irrational from an economic perspective and irresponsible. It is a program with unrealistic expected returns and a time-frame which lacks careful preparation. Nobody knows or can explain where the famous 50 billion will come from, since nobody has bothered to look what the market would be willing to pay for the assets the government is going to offer. It is a letter to Santa Claus that simply aims to fool the markets and to buy time.

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Greek public-sector workers lock out international financial inspectors

Guardian
September 29, 2011

International experts with the task of compiling a crucial review of Greece's fiscal progress ran into trouble before they could even start the job as public-sector workers protesting against wage cuts, layoffs and higher taxes locked them out of office buildings.

Inspectors from the European Union, International Monetary Fund and European Central Bank were greeted on Thursday with banners deploring the "barbaric measures" the so-called "troika" has meted out in exchange for propping up the moribund Greek economy. At the finance ministry – the hub of talks between the debt-stricken country and creditors – protesters shouted "take your bailout and leave" and prevented auditors from entering the building.

"We are sending a loud message to the government and the European Union that we have reached our limits, that it is the workers in our country and especially workers in the public domain who have carried the burden [of cost-cutting policies]," said Costas Tsikrikas, president of Adedy, the union of civil servants.

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Athens faces catch-up on deficit

Financial Times
September 29, 2011

Greece faces a desperate catch-up effort to achieve this year’s budget targets after reporting the central government deficit widened by almost a quarter per cent for the first eight months of this year.

Talks with international lenders, which resumed on Thursday, are intended to wrap up details of the 2012 budget and of structural reforms to reduce public sector spending so that Athens can receive its next €8bn slice of bail-out funding, according to Greek officials.

But the year-on-year increase in the central government deficit of 22.2 per cent from January to August indicates new measures may be needed for Athens to meet its commitment to reducing the overall government deficit from €24.1bn to €17.1bn this year.

International lenders will determine the size of Greece’s latest budget shortfall in the next few weeks. There is pressure from some policymakers in Germany and the Netherlands to ensure private sector bondholders make a bigger contribution to a second Greek rescue package.

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European banks: Holey grail

Economist
October 1, 2011

The fire raging in Europe’s financial system is growing fiercer by the day. Banks across the region have been unable to sell any long-term unsecured bonds since early July. Short-term markets have also been closing to some banks. A few large corporations prescient enough to have their own banking licences are depositing their cash directly with the European Central Bank rather than entrusting it to banks. An obvious step to douse the flames would be to recapitalise European banks. Yet by how much and with what capital?

Global regulations are already forcing banks to plump up their cushions significantly. Nomura reckons that simply getting banks to comply with the new Basel 3 rules, plus an additional surcharge on globally important banks, could leave European lenders, Britain’s included, needing to raise more than €100 billion ($136 billion). In theory banks have until 2019 to raise this amount, and much of it could come from profits over the next few years. But investors are impatient and are pressing banks to reach those levels sooner.

On top of this requirement is the extra capital that banks would need to absorb losses from a recession or the debt crisis. Such calculations depend on lots of assumptions, from the amount of capital that banks ought to hold to the precise nature of any euro-zone write-downs. “The key issue is what scenario the banks would need to be recapped for,” says Huw van Steenis of Morgan Stanley. “A soft restructuring in just Greece? Or restructuring in multiple peripheral countries?”

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Greek Government Divided on Job Cuts

Wall Street Journal
September 29, 2011

Greece's Socialist government is divided over a controversial plan to cut tens of thousands of jobs in the public sector as it has promised the country's international creditors, with some agencies declining to put forward layoff plans.

Two senior government officials with direct knowledge of the matter said the issue was due to be discussed at a cabinet meeting Thursday—coinciding with the return of a troika of international inspectors to Athens—but was pulled from the agenda after many ministries failed to compile lists of personnel that would have to go. Instead, the cabinet will revisit the issue at an extraordinary meeting set for Sunday, which will also approve the country's draft 2012 budget.

The job cuts represent a highly contentious issue for the Socialist government, which has traditionally drawn electoral support from a workers in the country's coddled public sector. With the Socialists now trailing the chief opposition party in the polls, government insiders worry that the debt crisis could evolve into political crisis leading to new elections.

"It's an extremely difficult process," said one cabinet minister, who described a range of issues bedeviling the plan. "Problems vary from constitutional restraints on firing permanent staff, to real needs for even more staff in education, police and hospitals, to resistance from heads of departments to put together lists of colleagues that basically will at some point be fired."

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How to stop a second Great Depression

by George Soros

Financial Times

September 29, 2011

Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control and they need to do so now.

Three bold steps are needed. First, the governments of the eurozone must agree in principle on a new treaty creating a common treasury for the eurozone. In the meantime, the major banks must be put under European Central Bank direction in return for a temporary guarantee and permanent recapitalisation. The ECB would direct the banks to maintain their credit lines and outstanding loans, while closely monitoring risks taken for their own accounts. Third, the ECB would enable countries such as Italy and Spain to temporarily refinance their debt at a very low cost. These steps would calm the markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved.

This is how it would work. Since a eurozone treaty establishing a common treasury would take a long time to conclude, in the interim the member states have to appeal to the ECB to fill the vacuum. The European Financial Stabilisation Fund is still being formed but in its present form the new common treasury is only a source of funds and how the funds are spent is left to the member states. It would require a newly created intergovernmental agency to enable the EFSF to cooperate with Europe’s central bank. This would have to be authorised by Germany’s Bundestag and perhaps by the legislatures of other states as well.

The immediate task is to erect the necessary safeguards against contagion from a possible Greek default. There are two vulnerable groups – the banks and the government bonds of countries such as Italy and Spain – that need to be protected. These two tasks could be accomplished as follows.

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Ungated version (Project Syndicate)

Farrell: “The fundamental problem here is a profoundly political problem.” #Euromess

Washington Post
September 29, 2011

Stark political differences are at the heart of the Euromess. The German parliament, for example, is reluctant to threaten Germany’s own economy by bailing out Greece, Italy, and other troubled states. To explain the political side of things, I talked to Henry Farrell, associate professor of political science and international affairs at George Washington University. He’s not optimistic. (The transcript has been lightly edited for length and clarity.)

Suzy Khimm: How likely is it that we’re headed for another global financial collapse due to Eurozone crisis?

Henry Farrell: I think we’re in real trouble. I think we’re in real, real trouble…I’m pretty confident we’re going to see some sort of fudging come out of current negotiations. I’m equally confident that this will help things come along for a few weeks, but it’s not going to work.

The fundamental problem here is a profoundly political problem. It used to be that bondholders assumed that the EU had changed things so that bigger member states were on the hook for the debts of the poorer member states. Therefore, it made sense to lend money to poorer member states, and bondholders were going to get their payday. I would call it a confidence bubble. It coasts along for a period of time, but once that confidence bubble gets pricked, it’s really hard to get it back. Bondholders were basing their holdings on set of political expectations — that when push came to shove, Germany would either bail out Greece, or Greece would never have to be bailed because it would behave the way that good northern states would.

In the EU, the instinct is always to fudge — to come up with technocratic fudges that are incomprehensible to the outside world but get some minimum consensus among states…But the problem is not a technocratic problem. It’s a political problem. So they’re going to hesitatingly help out the Greeks, but it’s not going to provide political actors or market actors the confidence I think they need.

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Can China Rescue Europe?

by Minxin Pei

Project Syndicate

September 29, 2011

The debt crisis in Europe is no longer a European affair. Coupled with fears of a double-dip recession in the United States, the European debt crisis is dragging the global economy into another cycle of financial panic and economic recession.

Sitting on the sidelines, emerging-market economies in general, and the so-called BRIC countries (Brazil, Russia, India, and China) in particular, may feel fortunate to be spared this financial maelstrom. But they should think again. With closely integrated global financial markets and trading networks, financial crises and economic contractions in the developed economies, which still account for nearly 60% of the world’s GDP, will inevitably undermine emerging-market countries’ prosperity.

Some have thus called upon major emerging countries to step up and use their huge foreign-exchange reserves to purchase the debt of crisis-ravaged countries, such as Greece, Italy, and Spain. In particular, China, with its $3.2 trillion in foreign-exchange reserves, is seen as a potential white knight coming to the rescue of debt-ridden European nations.

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Germany OKs Expanded Euro Bailout

Wall Street Journal
September 29, 2011

WSJ Berlin Deputy Bureau Chief Marcus Walker reports German Prime Minister Angela Merkel's securing of votes to expand the Euro Zone's bailout package paves the way for the 16 other Euro nations to approve as well.


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Is anyone in charge?

Economist
October 1, 2011

In the Centennial Hall in Wroclaw, Poland, in early September, Jean-Claude Trichet, president of the European Central Bank, warned Europe’s finance ministers how grave the global financial crisis was. The euro area, he said, was currently its epicentre, and the consequences could be much worse than anything seen so far.

But since most citizens are not yet feeling the pain, politicians are struggling to act decisively. A lightning visit to Wroclaw by Tim Geithner, America’s treasury secretary, to express his alarm over the “catastrophic risk” of cascading sovereign defaults seemed to have little impact. The Europeans offered either excuses (decisions in a European Union of 27 countries are hard to reach) or hostility (America should sort out its own debt). After two days of talks, the euro-zone ministers came no closer to a solution.

One week later, at the annual meetings of the IMF and World Bank in Washington, the Americans and others, including China, berated the Europeans for threatening the world economy. In fact, there was some progress: the Europeans agreed that there must be a plan to ring-fence solvent but illiquid economies, beef up the main bail-out fund, the European Financial Stability Facility (EFSF), recapitalise Europe’s banks and, not least, deal with Greece, which may yet default chaotically. But there was no agreement on any of the details of such a plan.

The euro zone has the firepower to solve this crisis—its aggregate deficit and debt numbers compare favourably with America’s and Britain’s. But it is not a single entity, politically or economically. The currency is European, but treasuries are national and economies are only partially integrated. Each country wants to limit its liability for the debt of others and to curb the interference of peers in its economic policies. All 17 members have a veto on key decisions, which must then be ratified by unruly parliaments. Now the euro zone is trying to re-design itself even as it sinks—and every country is wondering whether to help others or save itself.

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German banks can stomach Greek debt

Financial Times
September 29, 2011

German banks are resisting political pressure to take a bigger writedown on their Greek bondholdings so that Athens can get past a financing crunch.

Many analysts are confident however that even if German banks were forced to stomach as much as a 50 per cent writedown on their Greek debt portfolios, German institutions would experience no insuperable problems, assuming the crisis is contained to Greece.

Greece’s private sector creditors reached a tentative deal in July to swap their Greek bonds for longer-dated paper that would entail a 21 per cent reduction in the value of their holdings.

Josef Ackermann, Deutsche Bank’s chief executive, on Sunday warned against forcing private bondholders to write down their Greek bond holdings further saying he doubted whether many banks would participate. “It is not feasible to reopen the agreement,” he said.

It is no small irony, however, that if German banks are ultimately required to take a larger writedown, the German state could end up being one of the biggest losers.

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German Parliament Passes Euro Fund Expansion

Spiegel
September 29, 2011

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.


German parliamentarians on Thursday approved the planned expansion of the European Financial Stability Facility (EFSF) with 523 voting in favor, 85 against and three abstentions.

The bill's passage is a vital step in euro-zone efforts to increase the fund's lending capacity from its current €250 billion ($338 billion) to €440 billion. Germany's share of guarantees for the fund will rise from €120 billion to €211 billion, though several other euro-zone parliaments must still vote on the expansion.

The result also means that Merkel can breathe a sigh of relief. There had been concern that renegades within her center-right coalition could mean that Merkel would be forced to rely on opposition votes to pass the legislation. Had that come to pass, her power would have been severely curtailed .

In the end, however, 315 parliamentarians from Merkel's conservatives and from her junior coalition partners, the Free Democrats, voted in favor of the EFSF expansion. Fewer than 311 would have limited Merkel's power by making her reliant on opposition votes and indicating that she could no longer rely on the support of her own coalition.

To sweeten the deal, the law passed on Thursday includes a provision which gives the German parliament a say in future EFSF decisions. In a recent verdict, Germany's highest court had demanded greater parliamentary involvement in decisions relating to euro-zone bailouts. And now, a special committee will be established in the Bundestag to ensure parliamentary involvement even in hurried EFSF resolutions.

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Athens Heats Up Again

by Terence Roth

Wall Street Journal

September 29, 2011

Temperatures are running high in Athens again as EU and IMF returned to resume negotiation over a new handout for Greece, on the condition that the government inflict more pain on the population.

Mobs of angry civil servants blocked entrances to government agencies in Athens, included a group of protesters at the finance ministry hoping to prevent the EU and IMF officials from entering the building.

Almost daily strikes have rolled on. On Tuesday it was the Greek taxi owners continuing their 48-hour strike, joined in similar protests by state doctors, archaeologists and state-media technicians.

Not hard to see why. After pay cuts over the past year, new taxes on property and lower incomes are slamming households. Fully 100,000 public-sector jobs will have to go by 2015, a third of them by the end of this year. Pensions above 1200 euros are being slashed by 20% and those for people below 55 will drop by as much as 40%. Funding to state-supported institutions is evaporating, as is state infrastructure spending.

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Το αδηφάγο κράτος

του Δημήτρη Νικολακόπουλου

Το Βήμα

29 Σεπτεμβρίου 2011

Στους παροικούντες την Ιερουσαλήμ δεν προκαλεί καμία έκπληξη η αδυναμία της κυβέρνησης να βρει κάποια αποτελεσματική και κυρίως βιώσιμη λύση για την εργασιακή εφεδρεία. Ούτε βεβαίως, πολύ περισσότερο, γιατί σκοντάφτει η απόφασή της, που κατέστη και μνημονιακή δέσμευση, για τη μείωση του κράτους, το οποίο, παρά την κρίση, εξακολουθεί να αποτελεί ένα αδηφάγο τέρας.

Η μείωση του Δημοσίου, η αναμόρφωση των οργανισμών των υπουργείων και η δημιουργία ενός «επιτελικού κράτους» υπήρξε προγραμματική δέσμευση όλων σχεδόν των κυβερνήσεων της Μεταπολίτευσης. Επί σχεδόν 30 χρόνια οι εκάστοτε υπουργοί Εσωτερικών τοποθετούσαν στην πρώτη θέση των προτεραιοτήτων τους την αναμόρφωση ή την επανίδρυση του κράτους.

Η πρώτη απόπειρα έγινε από τον Αναστάσιο Πεπονή, ο οποίος μάλιστα στον ιδρυτικό για το ΑΣΕΠ νόμο είχε συμπεριλάβει και ρύθμιση η οποία απαγόρευε οποιαδήποτε μετακίνηση προσωπικού χωρίς προηγούμενη κατάργηση των οργανικών θέσεων. Και αυτό γιατί διείδε ότι το κράτος γιγαντωνόταν επικίνδυνα και μετατρεπόταν σε έναν γίγαντα με πήλινα πόδια που απομυζούσε τον κρατικό προϋπολογισμό.

Η ρύθμιση αυτή, παρά ταύτα, ουδέποτε κατέστη πράξη. Ακόμη και αυτός καθαυτός ο «νόμος Πεπονή», που καθιέρωνε ένα ευέλικτο, αδιάβλητο και αξιοκρατικό σύστημα προσλήψεων, είχε υποστεί ως το 2009 πάνω από 60 τροποποιήσεις που αλλοίωναν τη φιλοσοφία του, άνοιγαν «παραθυράκια» για ρουσφέτια και καθιέρωναν αδιαφανείς διαδικασίες.

Περισσότερα

Greece should not be forced to act alone

by Elena Panaritis

Guardian

September 29, 2011

No haircut. No default. Greece will persevere. This is our government's unyielding stance on the current crisis, stressed by the prime minister in Germany this week. He also called on the other eurozone countries to show an equal commitment.

Despite all the talk and speculation, we remain committed to the euro and therefore the terms of troika's lending programme (16 months into it) even by accelerating budget cuts. Most importantly, however, we match austerity measures with much-needed structural reforms.

Of course many people are critical of the painful austerity measures being imposed. Greeks are upset over having to endure higher taxes, harsh wage and pension cuts, public sector redundancies and the squeezing of public services. Yet we all show a tremendous level of persistence and maturity. Will these sacrifices be worth it in the end? Yes they will. We Greeks are already treating the crisis as an opportunity. We all share a vision of change for the better and are sticking with this.

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Greek protesters occupy government buildings

Financial Times
September 29, 2011

Public sector workers staged symbolic takeovers of government ministries and state organisations in Athens on Thursday as heads of mission from the troika – the European Union, International Monetary Fund and European Central Bank – resume discussions on the government’s latest attempt to put fiscal and structural reforms back on track.

“We’ll be occupying the building continuously for the next 48 hours”, said a union official at the finance ministry where Evangelos Venizelos, the minister, was due to hold a first meeting with troika officials.

Groups of activists also held unannounced sit-ins at the development, justice, health and environment ministries and at the national accounts office, according to Adedy, the civil servants’ union.

“These are timed to coincide with the return to Greece of the troika and the barbarous new measures that have been decided to cut our salaries further” said an Adedy statement.

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This is no time to give up on the euro

by Oliver Kamm

New Statesman

September 29, 2011

All the signs of the eurozone crisis are that quite soon there will be just two currencies still in operation in western and central Europe — the euro and sterling. But Labour hasn’t twigged.


British political divisions on Europe have, for half a century, run long and deep. Opinion within the coalition parties, however, is coalescing around a hardline position as the eurozone crisis intensifies. David Cameron muses that powers ceded to Brussels should be reclaimed. Nick Clegg declares that, had Britain adopted his party's policy a decade ago and joined the euro, it would have been a "huge, huge error". Yet Labour under Ed Miliband and Ed Balls appears to have little to say on Europe, other than to insinuate that Euroscepticism is a consensus view.

Labour's reticence is economically misguided and politically pusillanimous. There were design flaws in the euro that were predictable and need to be remedied rapidly: that much is clear. Yet the notion that the necessary reforms will lead to a European superstate and that Britain should redefine its constitutional position with the EU is absurd and damaging. There are big economic costs to the Conservatives' dogmatism and the Lib Dems' failure to restrain it.

The crisis of the euro is severe but there is no reason that it should be terminal. Right-wing pundits who see in it the collapse of the integrationist scheme are, like the old militant seers of the collapse of capitalism, letting ideology run ahead of reason. Monetary union is not the cause of the crisis. Done properly, it may help insulate member states from disruptive volatility in the international capital markets.

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German parliament approves expanded bailout fund

Washington Post
September 29, 2011

German chancellor Angela Merkel’s political standing was reinforced on Thursday, as she succeeded in convincing a majority of her own partners to approve expanded powers for the European bailout fund that she has said is critical to ensuring economic stability on the continent.

The expanded powers were approved in Germany based on the support of opposition parties, and it will go forward if six other euro area countries approve it over the coming weeks. But the vote in Germany suggests that Merkel has little ground on which to stand in pushing for further measures that would increase Germany’s commitments to helping its troubled fellow euro-users.

Merkel said this week that a July agreement with Greece on a second bailout may have to be renegotiated based on the findings of an inspection team from the International Monetary Fund and other creditors that arrived in Athens on Thursday. Her flexibility may be limited by the parliamentary vote.

“We are in an exceptionally difficult situation, because the financial markets remain extremely uncertain,” said German Finance Minister Wolfgang Schaeuble in parliament ahead of the vote, in a bid to win support for the measures.

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See also the FT, the NYT and the WSJ

'Maybe We Are Ruining the World'

by Joanna Kakissis

Foreign Policy

September 28, 2011

My Uncle Thanassis is 81 years old. Over the course of his long life, he has weathered every Greek identity crisis since World War II: the bitterness that divided and impoverished the country after its bloody 1946-1949 civil war between communists and conservatives. The painful postwar years that sent his friends to Australia and the United States for work. The 1967-1974 military junta that smothered free expression and movement. The rise in the 1980s of the populist socialism pushed by former premier Andreas Papandreou, a mercurial, Harvard-educated economist. The good-time 1990s, when even the souvlaki-shop owners in Athens seemed to be making enough money to buy new Alfa Romeos and island vacation homes. The Europeanization of the last decade, when espresso freddos replaced the traditional sweet, grainy coffees in cafes -- and when a white-haired man who wore three-piece suits and liked dancing to wailing clarinet music seemed hopelessly out of place.

Through it all, my uncle maintained that being Greek was a gift. "Greeks make people feel good," he used to say, his eyes twinkling. "We show people how to live in the moment, to appreciate the scent of lemons and jasmine in the summer, to dance instead of cry when the stress of life gets to be too much. Whatever is wrong with this country, we always have that."

Not anymore. When I recently stopped for an afternoon coffee at his little house in a crowded Athens neighborhood, his eyes were no longer twinkling. Like many Greeks, he is paying higher taxes and higher utility bills on a reduced pension. He is distressed to see that his once-homey neighborhood, where he has lived for 50 years, has become a run-down warren filled with empty shops and scarred by graffiti. By dusk, the main drag where he buys his feta cheese and Italian salami is now filled with forlorn Nigerian prostitutes as young as his teenage granddaughter. A few weeks ago, when he was walking home after a midday trip to the grocery store, he stopped to talk to a young Greek couple who claimed to be lost. When he got home, he realized they had picked his pockets clean of cash.

"Is this what it's come to?" he said, as downhearted as I'd ever seen him. "Stealing from each other in broad daylight and under the guise of the friendliness that has made us who we are?" He sipped his coffee and turned on the TV news, which was blaring yet another BBC report about how the Greek economy is ruining the world. "Maybe they're right," he sighed. "Maybe we are ruining the world."

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Last Chance to Save the Euro

by John H. Cochrane

Wall Street Journal

September 28, 2011

The European debt discussions always paint the alternatives as either bail out countries (really, bail out their bondholders) or break up the euro. In fact, the euro and the European economic union would be stronger if countries can default. For that reason, I advocated letting Greece go a year and a half ago when the crisis first erupted.

That chance to save the euro is fading. The European Central Bank (ECB) has bought sovereign debt from Greece, Portugal, Ireland, Italy and Spain. It has lent even more money to banks whose main asset is the same sovereign debt. Deposits are fleeing those countries' banks, and lending from the ECB is making up the difference.

Bank regulation is making the situation worse: Banks carry most of the ECB and sovereign debt at face value. And their own governments are pressuring banks to buy more sovereign debt.

When the defaults come, the ECB will take a big hit. Then Germany and the others will be faced with an awful choice: Pony up trillions to "recapitalize" the central bank or abandon the euro along with the union it represents.

"Eurobonds" that would be issued to buy sovereign debt, backed by EU-wide taxes, have been suggested but aren't going anywhere in the face of taxpayer resistance. In reality, Eurobonds have already been issued—they are called euros. The countries of the European Union are already pledged to make up any capital loss of the European Central Bank, and this must eventually come from tax revenues. That's the same as paying off Eurobonds.

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IMF lax on Europe? Past rescue efforts elsewhere hit private investors harder

Washington Post
September 29, 2011

As a financial crisis spread through Asia in the late 1990s, the International Monetary Fund prescribed some harsh medicine for countries such as Indonesia and South Korea. Private banks took losses, and there were dozens of bank closures, nationalizations and mergers.

But now that Europe faces a crisis, the approach has been different. The IMF and others have tried to ensure that banks and insurance companies get repaid for their numerous loans to indebted countries such as Greece, Portugal and Ireland.

The slow pace of confronting problems involving hundreds of billions of dollars in government loans that may or may not be worth their face value has been blamed for dragging out the crisis, and has drawn complaints of a double-standard from Asian officials.

Kaushik Basu, an Indian economist, said the IMF’s approach to the crisis buffeting Europe is “not quite what it would be for an emerging country getting into trouble.” Basu, who is vice chairman of a group that represents major emerging nations and advises the IMF, added that in “similar situations you take similar stands, and we are not quite there.”

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Βουλευτές τον καιρό της κρίσης

του Κωστή Παπαϊωάννου

Τα Νέα

29 Σεπτεμβρίου 2011

Βλέπω με κατανόηση τους έλληνες βουλευτές, σε πείσμα των καιρών και της επιλεκτικής μνήμης που τους χρεώνει όλες τις αμαρτίες του κόσμου. Δεν έπαψαν αίφνης να αποτελούν το αποτέλεσμα μιας - στρεβλής έστω - διαδικασίας αντιπροσώπευσης. Απλώς, έλαχε σε τούτο το κοινοβουλευτικό πλήρωμα να βιώσει μια τραγική αντιστροφή: ενώ δύσκολη ήταν πάντα η είσοδος στη Βουλή, σήμερα είναι δύσκολη η έξοδος. Το βουλευτικό άχθος της επανεκλογής επισκιάζεται από την καθημερινότητα της απαξίωσης.
Τα βουλευτικά προνόμια αποτελούν εύκολη λεία. Η εμμονική τηλεοπτική αναφορά σε αυτά διόλου αθώα δεν είναι, ιδίως όταν παραβλέπονται ασυλίες πιο σκανδαλώδεις. Η ασυλία της εκκλησιαστικής περιουσίας. Η ασυλία των στρατιωτικών (πρόσφατα πληροφορηθήκαμε τις «πριβέ» στρατιωτικές κλινικές και το «δίπορτο» των στρατιωτικών γιατρών με τους ιδιώτες ασθενείς). Η ασυλία των εφοπλιστών. Θυμίζουμε τη δήλωση του υπουργού Οικονομικών, «θα μιλήσουμε με τους εφοπλιστές ώστε να ενισχυθεί η προσπάθεια που καταβάλλει η χώρα», και την προσβλητική απόρριψή της. Σαν να υπάρχει άλλη κοινωνική ομάδα που της επιτρέπεται να απορρίπτει μετά βδελυγμίας την πρόθεση της κυβέρνησης να συνομιλήσει(!) μαζί της για το ενδεχόμενο να πληρώσει επιτέλους κάποιους φόρους. Και, βεβαίως, μιλάνε τα τηλεοπτικά παράθυρα για τα τηλέφωνα και τα αυτοκίνητα των βουλευτών, αλλά ποτέ για τις αδειοδοτήσεις των τηλεοπτικών σταθμών και τις τεράστιες οφειλές τους προς το Δημόσιο.

Καλώς, λοιπόν, αμυνόμενοι πολλοί βουλευτές αντιτείνουν ότι δεν είναι όλοι παιδιά κομματικού σωλήνα ή ανεπάγγελτα τέκνα μηχανισμών, όπως οι τηλεδίαυλοι διατείνονται. Δεν είναι όλοι επαγγελματίες της θεατρικής καταγγελίας, βουλευτές - youtube που μετατρέπουν το βήμα της Βουλής σε τηλεοπτικό σόου. Η παραδοχή ότι η πολιτική τάξη «εζυγίσθη, εμετρήθη και ευρέθη ελλιπής» δεν εξισώνει τους πάντες προς τα κάτω. Εξάλλου, δεν αποτελούν τον μόνο πυλώνα του πολιτικού μας συστήματος με ασθενή αντανακλαστικά και απουσία σχεδιασμού για την επόμενη μέρα. Ακόμα και οργανισμοί που επαγγέλλονται αιώνια ζωή και αναμέτρηση με τα ουσιώδη σε έναν άλλο τόπο και χρόνο, σε τούτο τον τόπο και χρόνο «κάνουν ταμείο» (η ανακοίνωση της Ιεράς Συνόδου για την εκκλησιαστική φορολόγηση αποτελεί μνημείο συνδικαλιστικού λόγου). Ή μήπως επιδεικνύει ένστικτο θεσμικής αυτοπροστασίας η ελληνική δικαιοσύνη; Οι μόνοι που το πιστεύουν είναι κάποιος ποδοσφαιρικός παράγων με πούρο και δυο μοτοσικλετιστές «ολυμπιονίκες».

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The Sick Men of Europe: Greece

by Joshua E. Keating

Foreign Policy

September 28, 2011

Greece continues to be ground zero for the European financial crisis. Experts from the European Union, the International Monetary Fund, and European Central Bank are in Athens this week to test whether the country is complying with the terms of its EU bailout package. German Chancellor Angela Merkel has suggested that the rescue might need to be renegotiated based on their findings. At stake is whether the country will receive its latest 8 billion euro tranche of the 110 billion euro bailout -- though most analysts agree it's a Band-Aid, at best. Germany's parliament is voting on Thursday on whether to approve enhanced powers for the eurozone's bailout fund -- known as the European Financial Stability Facility -- thought critical to ensuring Greece's solvency going forward.

Prime Minister George Papandreou was in Germany this week to plea for more aid from the German government and business leaders, describing his country's recent efforts to cut debt levels as "superhuman." He pledged a budget surplus by 2012.

In order to plug a budget gap that would have put the latest bailout tranche at risk, the government passed a controversial new property tax this week. Further austerity measures could include an additional 20 percent wage cut for various segments of the public sector (on top of the 15 percent cut they've already absorbed), a 4 percent reduction of pensions, and more tax increases. Greece is aiming to reduce its deficit to 7.5 percent of GDP by the end of this year from 10.5 percent last year.

With the new measures, Greece appears to have avoided a default for now, but possibly at risk of further damage to the country's social stability: A new round of strikes and demonstrations has swept through Athens with more planned for next month.

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Euro Area’s Rescue Options Shrinking

by Anil K. Kashyap

Bloomberg

September 29, 2011

One of the benefits of being an academic economist is that market participants and government officials will often tell you what they think in relatively frank terms.

Here is what I learned in dozens of meetings last week in Frankfurt, Madrid and London:

-- There is wide agreement that the status quo is unsustainable, and no one is optimistic about the future. The elevated cost of borrowing for banks and some governments must be addressed within weeks or at most a couple of months.

-- The euro area needs more integration and cooperation or it will dissolve. European central bankers say a breakup would cost a lot more than maintaining the union, yet they admit that there are severe -- and possibly insurmountable -- political impediments to getting Germany to guarantee other countries’ debt.

-- The prescription for what needs to be done has evolved in recent months. Many outside experts long believed that the largest European banks were seriously undercapitalized. The core of the problem was the high levels of sovereign debt that had not been marked to market that are held by banks in many countries. For example, Spanish banks at the end of 2010 had 230 billion euros of government debt from troubled countries, though less than 7 percent of those assets were marked to market.

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Germans Reconsider Ties to Europe

Wall Street Journal
September 29, 2011

As Angela Merkel races to convince Germans that their continued prosperity rests on preserving the euro, she is encountering strong resistance even from those in her own party who have been traditionally among the country's most pro-European politicians.

When German lawmakers vote Thursday on whether to put more money into Europe's bailout fund—a step many investors see as essential to prevent a market panic—several conservative deputies, including Wolfgang Bosbach, a prominent champion of European integration, are expected to vote "no." Mr. Bosbach, a high-ranking conservative in Ms. Merkel's Christian Democratic Union, has recently become an outspoken critic of the bailout strategy.

"The first medicine didn't work, and now we are simply doubling the dose," said the lanky Mr. Bosbach of the Greek debt crisis. "My fear is that when the big bang happens, it won't just be us who will have to pay but generations hereafter."

The lawmaker rebellion underscores a broader shift among Germans about their nation's role in Europe since the crisis erupted nearly two years ago. While the Thursday vote is expected to pass, and a vast majority of Germans continue to feel a strong, historical commitment to Europe, with a common currency as its anchor, many have grown doubtful of whether it's worth the ever-growing cost of saving the euro.

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Ένας από εμάς

του Ανδρέα Πετρουλάκη

Protagon.gr

29 Σεπτεμβρίου 2011

Φανταστείτε έναν γιατρό που κάθεται στο κρεβάτι του αρρώστου και θρηνεί μαζί με τους συγγενείς για την ατυχία που τους έχει βρει. Έναν καθηγητή που κάνει κοπάνες με τους έφηβους μαθητές του και καπνίζει μαζί τους κρυφά στην τουαλέτα. Έναν πυροσβέστη που παρακολουθεί το σπίτι που καίγεται σφιχταγκαλιασμένος με την οικογένεια των ενοίκων. Έναν στρατηγό που συναποφασίζει με τους φαντάρους το επιχειρησιακό σχέδιο πίνοντας μπύρες στο ΚΨΜ. Έναν τροχονόμο που ρυθμίζει την κυκλοφορία με γνώμονα ποιοί κορνάρουν πιο επίμονα. Το να έρχεσαι στη θέση του άλλου σε βοηθά να κατανοήσεις το πρόβλημα. Το να ταυτίζεσαι με τον άλλον σε καθιστά μέρος του προβλήματος. Και αυτό είναι καταστροφικό όταν ο ρόλος σου είναι να λύσεις το πρόβλημα.

Αυτό το πράγμα συμβαίνει με τους βουλευτές του ΠΑΣΟΚ τους τελευταίους μήνες. Οι προσεγγίσεις τους περιέχουν μπόλικο συναίσθημα, θυμικό και ψυχολογική φόρτιση και καθόλου τεχνοκρατικές αναλύσεις, αριθμούς και λύσεις. Παρεξηγούν την αποστολή τους ως εκπροσώπων του λαού. Δεν είναι να καθρεφτίζουν την απελπισία των πολιτών και να αναπαράγουν τα αδιέξοδά τους. Είναι να βρίσκουν τρόπους να παρακάμπτονται τα αδιέξοδα. Το “είμαι ένας από σας” είναι λαϊκισμός. Δεν θέλουμε να είσαι ένας από μας. Τους ακούμε σε συζητήσεις στη Βουλή, σε επιτροπές, σε Κ.Ο. , σε δηλώσεις. Αντί προτάσεις, οιμωγές. Αντί επεξεργασία πολιτικών, περιγραφή του εσωτερικού τους συγκλονισμού. Αντί κατάθεση προτάσεων, κατάθεση ψυχής. Αντί πολιτική, κοινωνιολογία και δημοσιογραφία. Νιώθουν λέει πίεση από τους ψηφοφόρους τους. Οι περισσότεροι δεν φαίνεται να νιώθουν πίεση από τον ιστορικό τους ρόλο σε αυτήν τη συγκυρία. Κι όμως. Αποτελούν την ευάριθμη ομάδα από την οποία περιμένουμε αποκλειστικά λύσεις. Και λύσεις αξιόπιστες και αποτελεσματικές δεν βλέπουμε ακόμα και όταν καταλαμβάνουν κυβερνητικές θέσεις. Κυρίως ψηφίζουν φόρους και πάσχουν για αυτό.

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Next Game Under Way in Euro-Zone Crisis

by William Boston

Wall Street Journal

September 29, 2011

Germans like to compare life to soccer. And a common phrase heard everywhere from the beer garden to the Bundestag is “after the game is before the game.” As German parliament sits down today to vote on a reform bill that will give the euro-zone’s bailout fund more teeth and greater lending power, a long, tense competition over how best to resolve the euro-zone debt crisis comes to an end.

On one side are those like Ms. Merkel and her allies, who appear to believe that the route to saving the euro, the European idea, and Germany’s banking system, lies in rescuing Athens from drowning in a sea of debt. On the other side of the debate are pro-European deputies who say the bailouts violate the Maastricht Treaty on monetary union and fear that the consequences of throwing good money after bad will be born by generations of Germans and Europeans not yet born.

My colleague Vanessa Fuhrmans writes in a Wall Street Journal piece about Wolfgang Bosbach, a prominent pro-European conservative deputy and bailout critic, that although “Germans continue to feel a strong, historical commitment to Europe, with a common currency as its anchor, many have grown doubtful of whether it’s worth the ever-growing cost of saving the euro.”

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Germany, do your duty and save the euro today

by Mario Monti

Financial Times

September 29, 2011

By a vote of the Bundestag on Thursday, Germany just may decide to kill its own best product – and precisely when it is really beginning to work. Such would be the result of a rejection of the eurozone package supported by Angela Merkel, the chancellor, and endorsed by many in the opposition.

When the euro was launched, it was given two almost impossible tasks. First, it had to provide a number of countries with a single currency that would prove as stable as had been the Deutschmark. Germany, which had inflicted immense tragedies to itself and the world partly as a consequence of hyperinflation between the two wars, could not settle for anything less. Most other European Union countries were keen on having themselves an “anchor of stability” on which to base economic growth.

The second, even more difficult, task was to induce a profound transformation not just of economic policies and structures but also of the institutions and the culture determining them. The agents of change were to be the principles and the rules underpinning the euro, enshrined in the Maastricht treaty, the stability and growth pact and in the Lisbon treaty, where the blueprint of a “highly competitive social market economy”, first experimented with in Germany in the 1950s, was adopted by the whole EU. National specificities, a richness of Europe, would of course persist, but as a consequence of sharing the euro all eurozone countries would gradually become somewhat more similar to the template developed in Germany as ordnungspolitik, the orderly structured application of liberal principles.

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EFSF Leverage: Euro Zone's Most Dangerous Delusion

by Geoffrey T. Smith

Wall Street Journal

September 29, 2011

Last weekend's meetings of the International Monetary Fund and G-20 were punctuated by panicked calls for an increase in the size of Europe's rescue funds, most of them aimed, predictably, at Germany.

German Finance Minister Wolfgang Schäuble must have lost count long ago of all the wonderful schemes the French have devised for spending Germany's money, whether from Paris itself, or from the EU and IMF, where the French genius has always exercised an influence far beyond the country's political clout. He will also be long used to U.S. calls for Germany to boost its domestic demand and reduce its current account surpluses, a call that has never faltered despite the evidence of the 1990s, when a series of German current-account deficits did nothing to stop the U.S.'s long-term decline in international competitiveness.

But whereas the interventions of Treasury Secretary Tim Geithner and IMF head Christine Lagarde fit into a largely familiar, if not predictable, pattern, Mr. Schaüble must have realized things had taken on a more serious dimension when the mild-mannered and respectful Canadians, Finance Minister Jim Flaherty and central bank Governor Mark Carney, started screaming "DO SOMETHING!!" as well.

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