Wednesday, November 30, 2011

Rating the Credit Raters

by Catherine Rampell

New York Times

November 30, 2011

My colleagues Julie Creswell and Graham Bowley had an article on the front page of The New York Times on Wednesday about how credit ratings agencies “missed or badly misread signs of trouble” in Greece.

Receiving an unrealistic credit rating is hardly unique to Greece, though.

As we’ve noted before, ratings agencies are tasked with judging how financially sound borrowers are, but they have historically been poor predictors of sovereign debt defaults and (especially) currency crises.

According to a 2002 study by Carmen Reinhart, a leading economic historian, the ratings agencies have frequently focused on the wrong variables when rating a country’s creditworthiness.

“Little weight is attached to indicators of liquidity, currency misalignments, and asset price behavior,” which research has found to be predictive of debt and currency crises, she wrote.

Finance Ministers Agree to EU Debt Guarantees

Wall Street Journal
November 30, 2011

European Union finance ministers settled on a plan Wednesday aimed at thawing Europe's frozen wholesale lending market, agreeing that national goverments would work in concert to offer guarantees backing the bonds issued by each nation's banks.

But the officials rejected a more ambitions plan that would have created a single "syndicate" in which the 27-nation bloc would jointly issue guarantees to ease European banks' funding troubles. That rejected proposal had been supported by the European Central Bank and other EU institutions.

Guarantees act as insurance policies that banks can buy to protect holders of their debt against default. Governments are eager to get a guarantee program up and running to help banks raise unsecured, long-term funding—a market that has been effectively closed to them for months as global financial institutions have grown increasingly wary of purchasing bonds issued by troubled euro-zone banks.

The creation of a syndicate would face large technical and political obstacles that would delay its coming into force, officials said. Moreover, most creditworthy governments have opposed joint guarantees, fearing the plan could undermine their own credit ratings.

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Central Bank Injections: Pain Killer, Not Cure

by Richard Barley

Wall Street Journal

November 30, 2011

It's not the bazooka the market was looking for, but coordinated action by six central banks to provide cheaper access to U.S. dollar funding is a significant response to the crisis. It should help to reduce pressure for banks to sell assets, helping to head off a growing credit crunch within the euro zone that had started to take its toll on the global economy.

But while the action triggered a broad market rally, it also reflects the severity of the crisis and adds to pressure on European policy makers to take decisive action.

The U.S. Federal Reserve, the European Central Bank, the Bank of Japan, Bank of England, Bank of Canada and the Swiss National Bank agreed Wednesday to cut the cost of borrowing U.S. dollars under swap lines by 0.5 percentage point. European banks have been struggling to get hold of dollars as U.S. money-market funds have cut lending and the cost of swapping euro loans for dollar loans had reached levels not seen since the collapse of Lehman Brothers.

The easier terms—the rate for an 84-day dollar loan from the ECB has more than halved, RBS calculates—should make banks more willing to borrow dollars from central banks; if many banks use them, there will be less stigma attached. The central banks also agreed to temporary bilateral swaps to offer liquidity in each of their currencies, while insisting this was precautionary: There was no demand for such facilities yet.

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Euro-Zone Unemployment Hits a Record High

Wall Street Journal
November 30, 2011

Germany's unemployment hit a two-decade low as the jobless rate across the euro zone reached a record high, highlighting the deep divisions among European economies but suggesting that Germany can avert recession and help prop up its more troubled neighbors.

Germany's resilience is unlikely to prevent the 17-member euro zone from sliding into a severe downturn, analysts warn. Statistics agency Eurostat reported on Wednesday that unemployment across the euro bloc soared in October to 16.3 million, its highest level since records began in 1995, adding to pressure on the European Central Bank to lower interest rates when it meets next week.

The 10.3% October euro-zone jobless rate—up from 10.2% in September at a fresh euro-era high—masked deep divisions between the prosperous north and fragile south. National unemployment rates in October ranged from 4.1% in Austria to 22.8% in Spain. Using harmonized EU data calculations, Germany's unemployment rate was 5.5% in October, according to Eurostat.


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The next strategic target: De Gaulle’s EU legacy

by Jacob Funk Kirkegaard

Vox

November 30, 2011

The ECB seems to be in the background during this crisis – almost helpless due to Treaty obligations and dogmatic adherence to old monetary theories. This column argues that quite the opposite is true. The ECB is a full-blooded political actor engaging in a strategy aimed at forcing EU political leaders to embrace fiscal rectitude and a quantum leap forward in European integration.

When Mario Draghi delivered his first prepared public remarks as ECB President on 8 November 2011, he provided several clues about the coming eight years.
  • No surprises on monetary policy, where he announced "continuity, consistency and credibility" as the touchstone, with these principles framed with reference to price stability.
Then came the important part. His choice of words and topic demonstrated why it is wrong to see the ECB as a "normal central bank", why the decades-old guidebook for independent central banks can be discarded.

  • Knowing that European political leaders cannot curb the ECB’s independence without violating their treaty obligations, Draghi took Eurozone politicians head on.

He scolded them for their lack of progress on reform, demanded action and called for "[s]olid public finances and structural reforms and…. a much more robust economic governance of the union going forward." Mindful of the ECB’s role in the ouster of Silvio Berlusconi, Draghi’s words have unusual impact.

In short, the ECB is a central bank like no other. In this crisis it is a full-blooded political actor. As the sole institution that can affect financial markets, its influence goes beyond monetary policy and is unchecked by Eurozone politicians. As I explain below, the ECB is speeding toward a confrontation, not with Spain or Italy, but with France.

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Europe’s Crisis Gets Real as Unemployment Soars

by Alex Brittain

Wall Street Journal

November 30, 2011

Wednesday’s publication of record unemployment figures is a pretty stark illustration of the economic impact Europe’s debt crisis is having–and raises the stakes still further for the politicians casting around for a solution.

The figures beg the question of how much worse it can get. Some 16.294 million people in the 17-nation euro zone were out of work in October, the highest tally since records began in 1995 and more than the combined populations of Belgium and Ireland.

In addition to the suffering of the individuals who have lost their job, the rise makes it harder still for governments to end the debt crisis. More unemployment means higher social security payments and lower tax receipts. Growth suffers, public borrowing rises, investors get anxious, and the debt crisis rolls on.

Losing patience, the Organization for Economic Cooperation and Development Monday called on Europe’s beleaguered leaders to take two big steps to end the crisis: making a big boost to its bailout fund and leaning on the near-unlimited funds available to the European Central Bank.

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Europe's Turn to Step Up—Now

by David Wessel

Wall Street Journal

November 30, 2011

Will European leaders hesitate, fumble, misread reality and ignore imminent danger until they have done even more damage to the world economy than the U.S. did in 2008?

No one calling the shots in Europe intends that. But watching their now-frequent summits—each of which, we're promised, will move closer to a solution than the last one—there is growing anxiety that Europe won't do what is needed in time.

In the past few days, the sirens have grown louder. Poland's foreign minister declared in Berlin: "I fear German power less than I am beginning to fear German inactivity." Japan's central banker warned of "an adverse feedback loop" in which evaporating confidence in European governments "has increased concerns about the stability of the financial system, which in turn has started to affect economic activity" as far away as Asia.

The Federal Reserve's vice chairwoman said "downside risks to global growth have increased significantly," largely due to "an intensification of stress in European banking and sovereign debt markets." And the Organization for Economic Cooperation and Development's top economist asserted: "Policy makers fail to see the urgency of taking decisive action."

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Iran, Greece top Biden's trip agenda

The Hill
November 30, 2011

Turkey’s help in halting Iran’s nuclear ambitions and the Greek economic crisis will be among the issues discussed in coming days when Vice President Joseph Biden huddles with leaders of those Aegean nations.

Biden is set to spend several days in Turkey and Greece. The White House said Monday the aim of the trip is to ensure Washington’s relationships with those nations remain strong.

The Aegean visit comes as Western leaders continue to search for a way to keep the Greek economy from failing, and as Turkey takes an even more important role in ending Iran nuclear program and ensuring stability in Iraq.

Tony Blinken, national security adviser to Biden, told reporters on a Monday conference call that the Turkey-Greece trip is “part of a continuum” with both nations.

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Armies of the unemployed

Economist
November 30, 2011

Labour markets in the euro zone suffered about as badly during the Great Contraction as did the labour market in America. Both economies saw a surge in the unemployment rate that topped out above 10%, and both economies then experienced a slow but steady decline in the rate of joblessness. But where unemployment in America seems to have temporarily leveled off at around 9%, the rate of joblessness in the euro zone is once again rising. As of October, the unemployment rate in the single-currency area was back to 10.3%.

There are several striking facts about recent movements in euro-zone labour markets. The first is the remarkable extent to which increased joblessness is due to deteriorating conditions around the periphery. Since the beginning of the year, Greek unemployment is up nearly 4 percentage points. The jobless rate in Germany, by contrast, has fallen a full percentage point over that period (see chart).

Much of the decline in German unemployment occurred early in the year, when the economy's export machine was running hot. It is interesting to see the extent to which this trend has continued, however. In September, new industrial orders in Germany fell 4.4%, yet from September to October Germany's unemployment rate dropped, from 5.7% to 5.5%. It's no wonder that there is less of a sense of urgency to the crisis in Germany.

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Central Banks Move on a Global Intervention

Wall Street Journal
November 30, 2011

The Fed, ECB and other central banks took coordinated action to support the global financial system as Europe's rolling debt crisis continues to trouble markets. Vincent Cignarella and Charles Forelle discuss details on Markets Hub.


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ECB Changes Its Tone

Wall Street Journal
November 30, 2011

After resisting calls to save the euro zone, the ECB may be changing its tune, and move towards more decisive action, Simon Nixon reports on Markets Hub.


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Central banks try to stop Credit Crunch ll

by Robert Peston

BBC News

November 30, 2011

The central banks of the world's biggest developed economies have taken pre-emptive action, to prevent a domino effect of banks collapsing in the event that they find themselves unable to borrow the major currencies they need.

In recent weeks, there has been evidence that major eurozone banks have found it increasingly difficult and expensive to borrow dollars, as huge US money-market funds have become wary of lending to them - because of the widespread perception that the eurozone could be moving from crisis to meltdown.

So the Federal Reserve, the US central bank, has today cut the cost of supplying dollars to the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada and the Swiss National Bank. These central banks have in turn pledged to lend whatever dollars are needed by their local banks, at this lowered interest rate.

The central banks have said they will continue to lend dollars to their respective banks in this way until 1 February 2013.

Also, these central banks have put in place contingency arrangements to supply other currencies to their banks, should the need arise.

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Τάκη Μίχα, "Μαύρη Βίβλος της Ελληνικής Οικονομίας"

Εκδόσεις Οξύ
Αθήνα 2011

Μέσα από την παρουσίαση των εξωοικονομικών παραγόντων που καθορίζουν την οικονομική ανάπτυξη στην Ελλάδα και τη συγκριτική θεώρηση αυτών των δεδομένων σε σχέση με τα άλλα κράτη της Ευρωπαϊκής Ένωσης ο συγγραφεας καταληγει στο συμπερασμα ότι είναι τέτοια η απόσταση που χωρίζει την Ελλάδα από τις άλλες χώρες της Ευρωζωνης-ακομα και από τα «γουρουνακια»- ώστε, τουλάχιστον από οικονομικής άποψης, το ότι η Ελλάδα θεωρείται ευρωπαϊκό κράτος οφείλεται σε ένα «γεωγραφικό ατύχημα».

Central Banks Stepping Up to Aid Global Economy

Wall Street Journal
November 30, 2011

WSJ's Charles Forelle reports several of the world's central banks joined forces to make it easier for European banks to access U.S. dollars.


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The central banks act: Battening down the hatches

Economist
November 30, 2011

The past 24 hours have seen a flurry of action around the world, in response to growing concern about the euro zone's sovereign-debt crisis. The story begins in Europe, where finance ministers meeting to discuss the future of the European Financial Stability Facility seem to have taken some key decisions regarding the fund. The EFSF will be able to lever its meagre €440 billion in capital (less amounts already committed to rescues for Greece, Ireland, and Portugal) in two different ways. First, by using its resources to guarantee 20% to 30% of the bond issues of struggling peripheral economies and, second, by creating "co-investment funds" that (it is hoped) will attract money from other investors and which can be deployed to buy bonds.

The trouble is that the total firepower of the EFSF is likely to fall short of expectations and well short of what will probably be necessary. It may amount to €1 trillion, but that's far too little to manage serious trouble for, say, Italian bonds. The ministers are increasingly eyeing the IMF for assistance, but its capital is also limited; the IMF has under $400 billion available to lend. There are hints that leaders are exploring the idea of channeling loans from the European Central Bank through the IMF, but it isn't clear that this will fly with the ECB's conservative, German contingent. There is an element of collective breath-holding, as everyone waits to see what will emerge from a meeting of euro-zone heads of state on December 9th—quite possibly a make-or-break gathering.

Against the backdrop of these disappointing outcomes and the deteriorating financial situation in Europe, central banks have once more ridden to the rescue. The Federal Reserve, Bank of England, European Central Bank, Bank of Japan, Bank of Canada, and Swiss National Bank announced today their intention to coordinate action to ease liquidity conditions in financial markets. The Fed will increase its dollar lending to other central banks who will do the same to other financial institutions, and all will reduce the cost of dollar borrowing. The aim is to defuse the growing trouble banks have had borrowing to finance their operations.

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Borrowing Costs Fall for European Bailout Fund

Wall Street Journal
November 30, 2011

Borrowing costs for the euro zone's vehicle for funding government bailouts reversed from higher levels Wednesday as market participants assessed plans on how it might support countries struggling with high amounts of debt.

Bonds sold by the European Financial Stability Facility act as an indicator of investor confidence in the euro-rescue project.

Borrowing costs on all four of the EFSF's bonds were lower than closing levels Tuesday after the facility outlined the latest plan for leveraging up its resources. Both of the two options put forward aim to provide "immediate and credible support" for large economies like Italy and Spain, it said.

"The final amount of firepower depends on the instrument mix, and the development of leverage is not instantaneous but should be seen as a process over time," said rates strategists at Société Générale.

An imminent increase in the EFSF's lending capacity—despite it being significantly lower than the €1 trillion touted earlier—combined with possible support from the International Monetary Fund has helped underpin risk appetite in the market, they said.

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Euro-Zone Meetings Reach 'Critical' Stage

Wall Street Journal
November 30, 2011

European Union finance ministers agreed to boost the European Financial Stability Facility but not by as much as expected. Terry Roth and Katie Martin discuss whether this will reassure markets or if more is needed to prevent pressure on the euro?


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Central Banks Act to Help Global Financial System

Wall Street Journal
November 30, 2011

Central banks from developed nations took coordinated action to shore up the global financial system. Dow Jones's Geoffrey Smith argues that this kind of joint action only takes places when there are serious problems.


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Interview with Ex-Greek Prime Minister: 'The EU as an Institution Is Still too Slow'

Spiegel
November 30, 2011

In a SPIEGEL interview, former Greek Prime Minister Giorgios Papandreou explains for the first time the reasons behind his surprising resignation and the new hope for national unity in Greece. He also advocates the implementation of euro bonds, saying it's time for European solidarity in the financial crisis.


SPIEGEL: Mr. Papandreou, two weeks ago you were forced to resign to make way for Lucas Papademos, a banker. Combined with Spain and Portugal, that means that three of the last remaining leftist governments in Europe have fallen victim to the euro crisis. Could it be that socialists are in fact not very good at handling money and financial problems, as the financial world likes to claim?

Papandreou: We socialists have very clear ideas about what needs to be done in times of crisis. The fact that our voices were not taken seriously enough in the past is one of the reasons why we are still so deeply caught in the crisis.

SPIEGEL: So once again, it is the others who are to blame?

Papandreou: No. Of course we need strict budgetary discipline, and we have to reduce expenditures, but we also need growth strategies. And we cannot lose sight of the markets, either. It is unacceptable that they are the ones driving the countries, day after day, hour by hour, not giving their governments the time that democratic institutions need. This undermines our democratic foundation. That's why we need strict regulation of the markets and more transparency, and why we have to contain the rating agencies. We, as socialists, have demanded this again and again, because we cannot do this alone as a single country. This is a mistake being made by the global political class and, in particular, by conservative Europe.

SPIEGEL: Still, in the crisis voters apparently have more confidence in the conservatives, no matter what political responsibility they might bear. Isn't this a disappointment for you?

Papandreou: We were voted into office in the midst of a crisis. And the outcome of the election was also a vote against the conservatives, who are responsible for the debts and the high deficit. The conservatives overshot the Greek budget by €26 billion ($35 billion) in a single year. If we'd had the current strict supervision by the EU a few years earlier, these problems would not exist in Greece today.

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Amid wider euro crisis, Greece ignored for now

Reuters
November 30, 2011

Only a few months ago, many assumed the biggest challenge facing the euro zone was how to manage the debts and dysfunctional economy of a single country, Greece. Now, policymakers and investors wish it were that simple.

Amid worries over Italy's mountainous debt, France's shaky AAA credit rating and the sustainability of Europe's banking system, Greece is barely mentioned.

The crisis in the currency bloc has become existential.

But investors ignore events in the cradle of democracy at their peril. Greece remains the country considered most likely to leave the euro. Such a move would trigger another round of market panic that could drag Europe deeper into crisis and potentially upend the global economy.

In their handling of Greece, the most egregious example of the euro zone's wider problems, Europe's leaders had an opportunity to demonstrate the will and capability to address the currency union's inbuilt flaws. A monetary union without a fiscal union could not succeed in the long term, economists say.

In the eyes of markets, the politicians have so far failed.

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Moral hazard will result from ECB bond buying

by Otmar Issing

Financial Times

November 30, 2011

In providing advances to the banking system to stay a panic, a central bank should follow two rules.

“First. That these loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it … Secondly. That at this rate these advances should be made on all good banking securities, and as largely as the public ask for them.”

This is the original definition of the role of the central bank as lender of last resort by Walter Bagehot in his famous book Lombard Street (1873).

Should the European Central Bank be this lender of last resort? The answer can only be a clear yes. Does the ECB act according to this principle? Yes, again. Indeed, for understandable reasons, the ECB is going far beyond what Bagehot asked the central bank to do in times of panic. Not only is it offering unlimited liquidity to the banking system. But the supply of central bank money is provided on extremely low interest rates, not on a penalty rate. And who would characterise the collateral accepted by the ECB as comprising only “good banking securities”?

So, why is there pressure on the ECB to act as lender of last resort? Because this term is used, or one should say badly misused, for totally different actions: namely a commitment of the central bank in principle to make unlimited purchases of government bonds.

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Euro Zone Looks to IMF for Increased Help

Spiegel
November 30, 2011

Euro zone finance ministers agreed on Tuesday night on measures to boost the euro backstop fund. But with the crisis rapidly worsening, the IMF may increase aid to the stricken currency union. European currency commissioner Olli Rehn says the euro is entering a critical 10-day period that may determine its fate.


Finance ministers from the 17 member-states of the European common currency zone have fulfilled their promise. On Tuesday evening in Brussels, the so-called Euro Group, a collection of euro-zone finance ministers, agreed on measures to increase the impact of the euro backstop fund, the European Financial Stability Facility (EFSF). The hoped-for result is a boosting of the fund far beyond its current lending capacity in order to assist heavily indebted euro-zone countries.

But in an apparent recognition of the drastically increasing severity of the financial crisis battering Europe, Euro Group President Jean-Claude Juncker said that the possibility of greater International Monetary Fund (IMF) involvement was being explored.

"We also agreed to rapidly explore an increase of the resources of the IMF through bilateral loans, following the mandate from the G-20 Cannes summit, so that the IMF could adequately match the new firepower of the EFSF and cooperate more closely," Juncker said.

According to a statement released by the EFSF on Tuesday evening, the fund will provide a kind of "first-loss" insurance to investors in state bonds issued by euro-zone member states. The measure will cover between 20 percent and 30 percent of losses in the case of a state insolvency and is intended to encourage investors to buy sovereign bonds from countries such as Italy, Belgium and Spain, which have recently struggled under exorbitant interest rates being demanded for their bonds.

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Euro Ministers Seek Greater IMF Role as Bailout-Fund Expansion Falls Short

Bloomberg
November 30, 2011

Euro-area finance ministers said they would seek a greater role for the International Monetary Fund in fighting the sovereign debt crisis after conceding the effort to expand their bailout fund missed the target.

The finance chiefs of the 17 nations using the euro agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility, Luxembourg’s Jean-Claude Juncker told reporters late yesterday in Brussels after leading the meeting.

“It’s very important that the IMF globally will increase its resources either by raising its capital or by bilateral loans so that it can lend more money to euro-zone countries in need,” Dutch Finance Minister Jan Kees de Jager said in an interview with Bloomberg Television after the meeting. “If we open the IMF effort, that will be sufficient together with the leverage options in the EFSF.”

After a series of stop-gap accords failed to protect Italy and Spain from surging bond yields, Europe is under growing pressure from U.S. leaders and international financial markets to find ways to boost the EFSF’s effectiveness. They agreed on a plan to guarantee up to 30 percent of bond issues from troubled governments and to develop investment vehicles that would boost the facility’s ability to intervene in primary and secondary- bond markets.

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Greece: The way forward

by Michael G. Jacobides, Richard Portes and Dimitri Vayanos

Vox

November 30, 2011

After a period of intense political turmoil, Greece has converged on a coalition government tasked with implementing reforms. This column argues Greece should now change from fiscal targets and debt restructuring to operational restructuring. It proposes three independent authorities with tight governance and accountability to manage healthcare procurement, monitor structural reforms, and fight corruption.


After a period of intense political turmoil, Greece has converged on a coalition government tasked with implementing the decisions taken on 27 October 2011. Lucas Papademos, who heads the new government, has only been given a few months and a handful of new cabinet members to achieve this. Nevertheless, Papademos has the formal support of both major political parties, and his popularity in recent polls exceeds 70%. There is therefore an opportunity to address not only the symptoms of Greece’s malaise, the debt and its proposed restructuring, but also the underlying causes, the structural and administrative failures which have brought Greece to the brink of bankruptcy (European Commission Task Force for Greece 2011).

Of course, creditors and the IMF should consider whether the proposed debt relief is sufficient for sustainability and growth (see past cases discussed by Sturzenegger and Zettelmeyer 2007). The focus in Greece, however, should now change from fiscal targets and debt restructuring to operational restructuring. The debt restructuring plan alone will not stave off a potential bankruptcy but will only delay it if the pathologies that brought the country to its current situation are not tackled. So, what should be the main priorities for reform? How can the new government build on the reform efforts made over the past one-and-a-half years, and how can the mistakes made during that period be avoided? These questions were the subject of a meeting that we hosted at London Business School a month ago.

The meeting was attended by former ministers and current MPs of both major parties in Greece, as well as by senior policymakers, bankers, regulators, and academics from Greece and abroad. It is sobering to note that this was the first event of its kind, whether inside or outside Greece. Very positively, despite the range and diversity of the participants, a remarkable consensus emerged on the way forward. We are thus convinced that a set of bold structural reforms can have broad political support, provided that political parties can take the courageous step of severing their own ties to practices which led to the onset of the problem.

Our report (Jacobides et al 2011), informed by the meeting, focuses on four key areas: tax evasion, public administration, privatisations, and the financial sector. Reform in the public administration is essential for the better functioning of the state and hence for the success of all other reforms. The main directions of reform are to make the public administration more independent from the politicians, while also introducing greater accountability and incentives.

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Read the Paper

See also

Germany’s Denial, Europe’s Disaster

New York Times
Editorial
November 29, 2011


Each day Europe inches closer to a full economic meltdown, but Chancellor Angela Merkel of Germany is still blocking what is needed: a real bailout of Europe’s weakest economies by their richer neighbors or the European Central Bank.

Mrs. Merkel and her team have had more than fair warning of the disaster to come, including a possible breakup of the euro. And it should be utterly clear that no country — including Germany — is immune.

On Tuesday, Italy had to offer a yield of nearly 8 percent to get investors to buy its debt — a level that forced Greece, Portugal and Ireland to seek bailouts. The crisis is now spreading to France, which is at risk of losing its triple-A rating. European banks are dumping government debt as fast as they can and hoarding cash. And, last week, when Germany tried to sell a new round of bonds, investors were willing to buy only half of the planned issue.

The markets have clearly figured out that a meltdown of the euro would impose enormous costs on Europe’s most solid economy, too. But German officials are still insisting that their profligate neighbors need to pay for their sinful ways — and that Germany’s virtuous taxpayers will not be made to foot the bill. Until recently, European leaders argued that they could quell the crisis with an underfinanced rescue fund and stiff austerity policies imposed on borrowers to re-establish their creditworthiness. Investors are unpersuaded, and the crisis keeps spreading. Italy owes $2.5 trillion. The $350 billion left in the fund isn’t enough to cover its financing needs, which run to $530 billion next year alone.

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Ratings Firms Misread Signs of Greek Woes

New York Times
November 29, 2011

In a stern pronouncement, Moody’s Investors Service this week warned of rising prospects for multiple defaults by countries in the euro zone and credit rating downgrades of nations across Europe if leaders should fail to resolve the spreading debt crisis.

When it comes to Greece, critics say Moody’s should have been tougher a lot earlier.

Until two years ago, the ratings agency took a relatively lax approach to growing signs of troubles in Greece, epicenter of the current crisis, even as the country plowed ahead with a borrowing binge that jeopardized its fiscal condition.

Moody’s held off dropping its strong A rating of Greece’s bonds despite growing political turmoil and economic woes through 2009. Investor fears over Greece’s short-term financing needs were “misplaced,” Moody’s said in a report in early December 2009. Twenty days later, after a review, the agency downgraded the nation’s debt, the last of the major ratings agencies to do so.

After that, the ratings of the debt-ridden country went into a virtual free fall, and within six months Moody’s assessed its debt as much riskier for investors, giving it junk status.

“If you look at the fact that this is going to be a country that is going to default on its debt, and two years before it was still single A, that is a very, very precipitous fall,” conceded Pierre Cailleteau, Moody’s head of sovereign debt ratings until he left in spring 2010. He rated Moody’s performance as mediocre, but added that it could have been worse.

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The EFSF: Unfinished business

by Bálint Horváth and Harry Huizinga

Vox

November 30, 2011

The European Financial Stability Facility was set up eighteen months ago as a response to the then Greek sovereign debt crisis. This column looks at the effect of the fund on the financial system in particular bank shareholders, the holders of bank bonds, and the holders of sovereign debts.


On 9 May 2010, Eurozone countries announced the creation of the European Financial Stability Facility (EFSF) to contain the Eurozone sovereign debt crisis. But is it working?

The EFSF was set up to make loans to Eurozone governments experiencing refinancing problems, with its own debt guaranteed by individual Eurozone countries. As originally conceived, these credit guarantees were limited to €440 billion but in July this year Eurozone politicians agreed to increase the guarantee ceiling to €780 billion, providing the EFSF with an effective lending capacity of €440 billion.

In October, Eurozone leaders decided to leverage up the remaining, uncommitted lending capacity of €250 billion to more than €1 trillion to be able to backstop the debt of a major Eurozone country such as Italy. However, leveraging the EFSF has proven difficult, as investors have shown limited interest to provide the necessary funding.

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European Officials Agree to Bolster Bailout Fund

New York Times
November 29, 2011

With the euro zone debt crisis worsening by the day, finance ministers from the 17 countries that use the currency approved more loans on Tuesday to stave off a Greek default and agreed to bolster their bailout fund.

Speaking after the meeting, Jean-Claude Juncker, who heads the euro zone finance ministers, said they had agreed to release their portion of an 8 billion-euro loan to Greece. The International Monetary Fund is expected to sign off on its share — roughly one third — early next month, making the loans available by the middle of December.

The ministers also agreed on rules to increase the firepower of their bailout fund, the European Financial Stability Facility, and will be able to offer insurance to those buying the bonds of nations like Spain and Italy. In these cases, insurance certificates — attached to make bonds more attractive — will themselves be tradable, said Klaus Regling, who heads the bailout fund. The fund will also seek investment from sovereign wealth funds and other non-European sources.

Though a goal of 1 trillion euros, or $1.3 trillion, was set for the expanded bailout fund, ministers acknowledged that this was now unlikely, and no figure was given at Tuesday night’s news conference.

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Sarkozy Can Help the Euro—and Himself

by Simon Nixon

Wall Street Journal

November 30, 2011

For much of the past two years, Germany has endured a lot of criticism for its approach to the euro-zone crisis, not all of it fair. Some say it is guilty of ingratitude, failing to acknowledge how much of its own economic success is due to membership of the euro zone; many believe it has misused its political and economic power to impose ill-judged austerity policies on its European neighbors, worsening their economic crises; and it is accused of a lack of solidarity for refusing to allow policies that might end the crisis, such as greater European Central Bank intervention and the creation of common euro-zone bonds. The result is that Chancellor Angela Merkel can expect to receive much of the blame if, as some now expect, the common currency breaks up.

There is an element of truth to these criticisms. Germany has certainly often been slow to appreciate the consequences of its actions. It underestimated the speed and severity of the contagion that arose after it insisted on imposing losses on private-sector owners of government bonds as a condition of future bailouts; it failed to anticipate the devastating impact on confidence of Ms. Merkel's statement that Greece could leave the euro; and even now, Germany may be underestimating the seriousness of the current crisis—in particular how far the sovereign-debt crisis reflects a loss of confidence in the wider market rather than a lack of credibility in national fiscal policies.

Even so, Germany can't be faulted for its clear-sighted analysis of the euro's failings and what must be done to eliminate them. It has recognized that this is, above all, a governance crisis. Too many European governments had become the prisoners of vast, unproductive public sectors and over-mighty trade unions, buying electoral support with lavish entitlements that destroyed competitiveness and ran up unsustainable debts. At the same time, Germany recognized that the euro zone's institutional arrangements, including the Stability and Growth Pact that was supposed to guarantee fiscal discipline, had proved woefully inadequate. Finally, it recognized that only market forces, no matter how painful, could exert the necessary pressure on governments to reform.

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Euro Zone Falls Short on Fund

Wall Street Journal
November 30, 2011

Euro-zone finance ministers agreed on Tuesday on details to expand the bloc's bailout fund but acknowledged it would have less capacity to help troubled nations than once hoped, and suggested future efforts to resolve the worsening crisis would depend on the European Central Bank and the International Monetary Fund coming to their aid.

An analysis presented at the meeting suggested the fund might raise between €500 billion and €750 billion ($700 billion to $1 trillion), according to a person familiar with the matter, far short of the €1 trillion or even €2 trillion that many had expected. After the meeting, officials didn't give a figure for its expected size.

But such sums would fall shy of the amount that would be needed to convince financial markets there is enough in the pot to rescue Italy and Spain, as well as to support Europe's troubled banks.

The rising debt-financing costs of Italy, represented at the meeting by its new prime minister, Mario Monti, were a major concern of the meeting, officials said, adding there were worries about the country's heavy borrowing need of about €400 billion next year.

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Doubt grows over firepower of euro rescue fund

Financial Times
November 30, 2011

Launched to great fanfare a year ago, the eurozone rescue fund could soon be overtaken by events.

Eurozone finance ministers meeting in Brussels on Tuesday night agreed on another incarnation of the European Financial Stability Facility, replete with new elements aimed at making the money it can draw on go further.

However, many in financial markets have become increasingly dismissive of what only a few months ago was being hailed as the potential solution to the eurozone debt crisis.

“Yesterday’s solution” is how Gary Jenkins of Evolution Securities describes the EFSF, currently a €440bn fund backed by eurozone member states to bail out troubled countries. Has it been left behind by the rapid escalation in the crisis that has engulfed Italy and Spain and threatens to suck in “core” countries such as France and even Germany?

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Germans’ Righteous Stand Fans Flames in Euro Crisis

by Clive Crook

Bloomberg

November 30, 2011

Radoslaw Sikorski made a striking comment in Berlin on Monday night. “I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.”

I see his point, though “inactivity” doesn’t quite do justice to Germany’s impressive dedication to deepening the euro area’s crisis. This isn’t mere inactivity. This is zeal in pursuit of catastrophe.

The German government sees itself as standing up for fiscal and monetary rectitude. The euro area’s problems, it believes, have been brought on by lack of discipline in countries with lower standards. This is true, of course -- yet one wonders how much scorched earth Germany thinks is needed to drive the point home.

Let’s put it another way: Germany owns the biggest house -- fully insured and with the best fire prevention money can buy -- in a tight cluster of dwellings in the European subdivision. One of those houses caught fire because the owner, despite repeated warnings, refused to fix a broken heater. Conditions are parched, and a hot, dry wind is picking up. The flames have spread, and several other houses are burning.

A rational person might say, “Call the fire department.” Germany says, “Hang on. Didn’t we tell you this would happen? Let’s get clear on how it started before we start spraying water everywhere. You can do a lot of damage that way. Plus, what’s the rush? If we put fires out the instant they start, then why would anyone take fire prevention seriously in the first place?

“Also, we’ll need a joint insurance policy (watch out for that flaming debris over there) with a tough inspection system to avoid any future free riding.

“Actually, maybe we can use this fire to improve the neighborhood. Honestly, it’s the only way to get anything done around here.”

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Steve Brenn (San Diego Union-Tribune)

Tuesday, November 29, 2011

Business and the eurozone: Looking for the exit

by Tony Barber

Financial Times

November 29, 2011

Companies that operate in the troubled 17-nation single currency area want it to survive but are starting to concede that simply hoping for the best is no longer an option.


From his base in the Königs­allee, the canalside boulevard that is Düsseldorf’s premier shopping street and one of the smartest German office addresses, Andreas Schmitz is well placed to monitor European economic progress – or lack thereof.

Not only does he head HSBC Trinkaus, a German subsidiary of the UK financial group that helps look after the wealth of the surrounding Rhine-Ruhr industrial heartland and beyond. As president of the BdB, the country’s main banking association, he is also a frequent visitor to Frankfurt, the commercial capital and home to the European Central Bank.

As the ECB and Europe’s national leaders grapple with a sovereign bond crisis that threatens the continent’s nearly 13-year-old monetary union, Mr Schmitz’s corporate clients are among those questioning its durability. “There is no blueprint for anything,” he says. “You do discuss certain scenarios with customers, but it is like poking around in the fog.”

For months it has been the best-kept secret of European business. In spite of the most solemn declarations from the continent’s political leaders that they will move heaven and earth to save the euro, are more and more companies quietly trying to protect themselves against the possible disintegration of the 17-nation currency? The general opinion of dozens of business executives interviewed by the Financial Times this month is that although a eurozone break-up would be both undesirable and fiendishly difficult to plan for, to cross one’s fingers and hope for the best is emphatically no longer an option.

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Businesses plan for possible end of euro

Financial Times
November 29, 2011

International companies are preparing contingency plans for a possible break-up of the eurozone, according to interviews with dozens of multinational executives.

Concerned that Europe’s political leaders are failing to control the spreading sovereign debt crisis, business executives say they feel compelled to protect their companies against a crash that can no longer be wished away. When German chancellor Angela Merkel and French president Nicolas Sarkozy raised the prospect of a Greek exit from the eurozone earlier this month, it marked the first time that senior European officials had dared to question the permanence of their 13-year-old experiment with monetary union.

“We’ve started thinking what [a break-up] might look like,” Andrew Morgan, president of Diageo Europe, said on Tuesday. “If you get some much bigger kind of ... change around the euro, then we are into a different situation altogether. With countries coming out of the euro, you’ve got massive devaluation that makes imported brands very, very expensive.”

Executives’ concerns are emerging as eurozone finance ministers weigh ever more radical options to tackle the sovereign debt crisis, including the possibility of funnelling European Central Bank loans to struggling countries via the International Monetary Fund.

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Greek banks suffer surge in withdrawals

Financial Times
November 29, 2011

The head of Greece’s central bank said on Tuesday that deposits had shrunk significantly in the past two months as the public withdrew billions of euros in reaction to mounting political tension.

George Provopoulos, the central bank governor, told a parliamentary committee that outflows from the banking system increased to €5.5bn in September and €6.5bn in October.

“These were two very bad months because of political uncertainty,” said Mr Provopoulos, who was presenting the bank’s first-half report on the Greek economy to the house economic affairs committee.

Outflows tripled compared with the same two months of last year when about €4bn left the system, according to figures published by the Bank of Greece.

Analysts said the withdrawals reflected specific economic and political events as the socialist government of George Papandreou, the former prime minister, struggled to meet budget targets before imploding over a failed plan to call a referendum on the latest bail-out deal.

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Ten crucial days in race to save euro

Financial Times
November 29, 2011

When finance ministers from the 17 eurozone countries sat down to dinner last night in Brussels, they kicked off a 10-day whirlwind of high-level meetings, parliamentary votes and diplomatic gatherings that could prove pivotal to Europe’s increasingly frantic efforts to rescue the single currency.

The culmination will be a summit meeting in Brussels on December 8-9, when European leaders may agree to overhaul the European Union treaties for a historic leap forward in the bloc’s economic and political integration.

Moves towards a fiscal union could give the European Central Bank reassurance to intervene more heavily in eurozone bond markets.

The meetings are unfolding against a growing sense of despair in financial markets and are fraught with potential for missteps.

“This summit really is a last chance,” said one EU official. Yet he bemoaned the continued disagreements between Germany and France – the eurozone’s biggest economies – over the central challenges to resolving the crisis. “We could be left naked.”

Finance ministers from all 27 EU members will meet in Brussels today to discuss ways to ensure liquidity for Europe’s increasingly credit-starved banks. Attention will then shift to France.

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What the IMF should tell Europe

by Martin Wolf

Financial Times

November 29, 2011

Can the International Monetary Fund save the eurozone? No. But it can help. The world, whose interests the IMF represents, has a stake in what happens. That gives the IMF the right to act. The question is how.

The world has reached a new and potentially even more devastating stage of the financial crisis that emerged in the advanced countries in the summer of 2007. Its epicentre is the eurozone. Unwilling to focus on the critically ill patient in front of it, eurozone leaders spend their time on designing an exercise regime to ensure he never has another heart attack. This is displacement activity.

In the view of many policymakers outside the eurozone, “they just do not get it”. Its members, above all Germany, the most important player, seem paralysed by domestic politics. That is not surprising, since politics remain national. But it also suggests that the project was premature at best, and unworkable at worst.

The latest economic outlook from the Organisation for Economic Co-operation and Development paints a grim picture. Even if catastrophe is avoided, the economy of the eurozone is forecast to stagnate next year. But, notes the OECD, “serious downside risks remain”. Moreover, “a large negative event would ... most likely send the OECD area as a whole into recession, with marked declines in the US and Japan, and prolonged and deep recession in the euro area”. Even emerging markets would suffer.

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Greek Aid of $7.7 Billion Is Said to Be Cleared by Euro Finance Ministers

Bloomberg
November 29, 2011

Euro-area finance ministers approved a 5.8 billion-euro ($7.7 billion) loan to Greece under last year’s bailout after eliciting budget-austerity pledges from Greek political leaders backing a unity government, a European official said.

The finance chiefs from the 17 nations using the euro cleared the payment at a meeting today in Brussels, said the official, who spoke on condition of anonymity.

The go-ahead for the sixth disbursement of funds under the fully taxpayer-funded package of 110 billion euros shifts the spotlight to a second rescue of Greece that foresees 50 percent losses for private investors in Greek bonds. The new aid plan, crafted at an October summit, also includes 130 billion euros in extra public funds.

After initially endorsing the next loan for Greece on Oct. 21, the euro area froze the payment this month because former Socialist Premier George Papandreou called a referendum on the rescue plan. He later called off the vote, resigned and was succeeded by ex-central banker Lucas Papademos, whose interim government has the support of three parties to press ahead with budget cuts needed for continued aid.

“In Greece, we have all the necessary conditions in order to go ahead with the next disbursement,” Greek Finance Minister Evangelos Venizelos said in an e-mailed statement today before the decision in Brussels. “We have the necessary political consensus, we have the necessary national unity and also the national commitment and determination to go ahead.”

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The High Price of Abandoning the Euro

Spiegel
November 29, 2011

There is mounting speculation that the euro zone will break apart, or even that the single currency will be abandoned altogether. It often sounds as if such scenarios wouldn't be so bad for Germany. In fact the consequences would be catastrophic for Europe and for its largest economy.


The warning signs are mounting, and fresh news is adding to the gloom every day. Britain's financial watchdog has instructed banks to brace for a possible break-up of the euro zone. British currency trader CLS Bank is reportedly conducting stress tests to prepare for this worst-case scenario.

Polish Foreign Minister Radoslaw Sikorski made a dramatic appeal to Germany on Monday to prevent a collapse of the currency union, saying: "We are standing on the edge of a precipice."

German investors are jettisoning derivatives on a large scale because they have lost confidence in the instruments. For the first time, it appears, people across Europe regard the downfall of the euro as a real possibility.

Is it really for the first time, though? In fact, scenarios for the euro's breakup are older than the currency itself. At the end of 1998, Harvard Law School Professor Hal Scott published a paper called "When the Euro Falls Apart." He put the chances of the euro failing at around 10 percent.

Today, that's a real prospect. According to Mark Cliffe, the chief economist of ING Bank, "even the most ardent euro admirer must concede that the probability of countries leaving or the breakup of the euro zone is no longer zero."

The economist Nouriel Roubini, known as "Dr. Doom" because he predicted the 2008 financial crisis, recently put the likelihood of the euro zone collapsing at 45 percent. But such expert forecasts sound abstract to most people.

What would be the concrete consequences and costs of a euro apocalypse -- for Europe and for Germany? Here's an assessment:

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Greek statistics: Numbers in action

Economist
November 29, 2011

Euro-zone finance ministers meeting today in Brussels are preparing to release Greece’s latest (and much-delayed) tranche of bail-out funding, worth €8 billion ($10.7 billion). But all is not well in the country that kicked off the long-running euro crisis. Andreas Georgiou, the head of Elstat, Greece’s statistics agency, is facing a criminal investigation for allegedly fiddling the public-finance books.

If the investigation finds that the state was damaged by such actions, Mr Georgiou could be charged with "breach of faith", a crime that carries a potential life sentence. On December 12th he will appear before a prosecutor to provide evidence. He denies the allegation. "Unfortunately, in Greece statistics is a combat sport," he told the Financial Times.

Mr Georgiou stands accused of artificially upping Greece's 2009 budget-deficit figure from 13.4% to 15.8% of GDP, taking the country to the top of the euro zone's league of fiscal shame for that year. The revised estimates, say his detractors, meant that Greece was forced by its international partners to take ever-harsher austerity measures to receive bail-out funding. Mr Georgiou would make a useful scapegoat to many Greeks who have suffered over the past two years.

The case was brought following claims by Zoi Georganta, an Elstat board member, that Mr Georgiou had inflated the budget-deficit figures. Ms Georganta, along with most of the other board members, was sacked earlier this year. Some former Elstat officials have supported her claims.

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Trouble around the other periphery

Economist
November 29, 2011

The wires are atwitter with a striking statement made by Poland's foreign minister, Radek Sikorski, in a speech given yesterday:
I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.
As remarkable as the above line is from an historical standpoint, it's easily understandable. Poland's economy is closely linked to the euro zone and it trades heavily with Germany. A collapse in the euro zone would drag much of central Europe into a deep recession.

The urgency of Mr Sikorski's statement may be linked, however, to the very real financial pressure facing central European economies right now. As European banks look to shore up balance sheets and increase capital ratios, they are curtailing loans to emerging markets. Capital flight out of those markets is leading to tumbling currencies (see chart at right). While economies like Greece and Italy would love to have a currency that could drop, dropping valuations are much trickier for emerging markets to manage and can do serious damage.

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Greek Bank Withdrawals Accelerated Amid Crisis

Bloomberg
November 29, 2011

Greek political instability spurred an acceleration of bank withdrawals, with the decline stemmed by the appointment of a new government this month.

Greek banks saw an outflow in deposits of about 13 billion euros to 14 billion euros ($18.7 billion) in the two months to the end of October, said George Provopoulos, the head of the central bank and a member of the European Central Bank Governing Council. Deposits totaled 183.2 billion euros at the end of September.

“One could say these two, two and a half months have been the worst for deposits since the start of the crisis,” Provopoulos told lawmakers in Athens today. He said the decline continued in early November and has since stabilized.

The comments indicate that as much as 8.6 billion euros moved out of the Greek banking system in October alone, since the central bank had reported a 5.4 billion-euro outflow in September. The September figure was the biggest one-month decline since Greece joined the euro as doubts surfaced about the country’s ability to meet the terms of an EU-led bailout.

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Γ. Προβόπουλος: το διακύβευμα είναι η παραμονή της Ελλάδας στο ευρώ

Το Βήμα
29 Νοεμβρίου 2011

Τον φόβο ότι η ύφεση θα ξεπεράσει το 5,5% το τρέχον έτος, εξέφρασε στην Βουλή ο διοικητής της Τραπέζης της Ελλάδος κ. Γ. Προβόπουλος, προβλέποντας ότι θα κινηθεί στο 5,8%.

«Φοβούμαι ότι θα είναι κοντά στο 5,8%», είπε συγκεκριμένα, προσθέτοντας: «Ελπίζω να μην επιβεβαιωθεί η πρόβλεψη του ΟΟΣΑ για ύφεση 6,1%». Αναφερθείς στα αίτια επιδείνωσης της ύφεσης ο κ. Προβόπουλος επισήμανε την έλλειψη αποφασιστικότητας στην εφαρμογή της δημοσιονομικής προσαρμογής, σε συνδυασμό με την μη περικοπή πρωτογενών δαπανών σε μόνιμη βάση.

Για το 2012 πρότεινε την εφαρμογή μιας πολιτικής ταχύτερης ανάκαμψης με έμφαση στην μείωση των πρωτογενών δαπανών και δημιουργίας πρωτογενών πλεονασμάτων με ρυθμούς ακόμα υψηλότερους από τους προβλεπόμενους.

«Είναι απαραίτητο η κυβέρνηση να είναι ισχυρή και αποτελεσματική ώστε να εφαρμόσει τα απαραίτητα μέτρα», είπε χαρακτηριστικά, τονίζοντας ότι το πρώτο καθήκον της κυβέρνησης Παπαδήμου είναι «να αποκαταστήσει την εμπιστοσύνη που έχει κλονιστεί βαρύτατα». Και πρόσθεσε: «Για να εμπεδωθεί όμως η εμπιστοσύνη στις προοπτικές της οικονομίας, η σύγκλιση των πολιτικών δυνάμεων που εκφράστηκε με το σχηματισμό της νέας κυβέρνησης πρέπει να γίνει πιο ουσιαστική», ενώ σημείωσε ότι προκειμένου να εκφραστεί αυθεντικά « η βούληση των πολιτών στις επόμενες εκλογές πρέπει να περιγραφούν με απόλυτη ειλικρίνεια η κατάσταση της οικονομίας και η διεθνής πραγματικότητα και να αναλυθούν χωρίς περιστροφές και ωραιοποιήσεις οι προτεινόμενες λύσεις και να εξηγηθούν με σαφήνεια το κόστος και το όφελος καθεμιάς».

Αναφερθείς στην διαχείριση του δημοσίου χρέους, ο κ. Προβόπουλος ανέφερε: «Μέχρι πέρυσι έλεγα ότι το χρέος είναι βιώσιμο. Εάν η οικονομική πολιτική χειριζόταν με διαφορετικό τρόπο τα ζητήματα, το χρέος θα ήταν βιώσιμο».
Ενώ σχετικά με το «κούρεμα» των ομολόγων είπε: «Ακόμα και τώρα θα ήταν καλύτερα να είχαμε αποφύγει το ΄΄κούρεμα΄΄ γιατί οι συνέπειες θα είναι χειρότερες στο μέλλον -και να θυμίσω την άποψη του πρωθυπουργού πάνω στο θέμα αυτό».

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Euro in `Death Struggle,' FX's John Taylor Says

Bloomberg
November 29, 2011

John Taylor, founder, chairman and chief executive officer of FX Concepts LLC, talks about the outlook for the euro and the European sovereign debt crisis. Taylor, speaking with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop," also discusses the Japanese yen.



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Interview with Romano Prodi: 'Germany Must Make a Decision or the Game Is Over'

Spiegel
November 29, 2011

With the euro on the brink, all eyes are on Germany. Romano Prodi, a former Italian prime minister and the ex-president of the European Commission, says in a SPIEGEL interview that Germany, as the most powerful country on the Continent, must finally step up and show the courage to resolve the debt crisis.


SPIEGEL: Do you, like European Commission President José Manuel Barroso, support the introduction of euro bonds in order to steer Europe out of the crisis?

Prodi: The European Central Bank needs to play a proper role in the crisis and euro bonds also need to be issued. Together with my colleague, I proposed bonds that are to be guaranteed by the state's gold reserves and other funds.

SPIEGEL: And what effect would these measures have?

Prodi: Think about one thing: Why is it that nobody attacks the dollar? Looking at the United States budget, the dollar is in a much worse situation than the euro. The debt state of California is much worse off than the Greek one. But the dollar is defended, also by the Fed. That makes the dollar a big, strong dog. And nobody bites a big dog.

SPIEGEL: Could the euro become a big dog, too?

Prodi: If there is the political will. Look, Germany has a really powerful position right now. Germany is the new China.

SPIEGEL: Surely that is an overstatement.

Prodi: Let's take the German-French summit. By now it is a German-German summit. You cannot say it loudly, but it is true: Chancellor Merkel, in the end, is obliged to dictate the rules.

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Γκαζώνω και δεν πληρώνω

του Στράτου Παπαδημητρίου

Τα Νέα

29 Νοεμβρίου 2011

Αν υπάρχει ένας χώρος όπου καθρεφτίζεται ανάγλυφα η παθογένεια της ελληνικής κοινωνίας, αυτός είναι ο δρόμος και το πεζοδρόμιο. Το πώς οδηγούμε, πώς συμπεριφερόμαστε ως οδηγοί και πώς η πολιτεία αντιμετωπίζει τις σχετικές παραβατικές συμπεριφορές είναι ενδεικτικά για το τι συμβαίνει και στους άλλους τομείς της κοινωνίας.

Κατ' αντιστοιχία με το χρέος και τα ελλείμματα, είναι γεγονός ότι κατέχουμε μία από τις πρώτες θέσεις, αν όχι την πρώτη, στην Ευρώπη στα τροχαία δυστυχήματα σε σχέση με τον πληθυσμό μας, παρά τον ισχυρισμό ότι είμαστε πολύ καλοί οδηγοί. Ακόμη και η σημαντική μείωση κατά 15% των ατυχημάτων του πρώτου εξαμήνου του 2011 σε σχέση με το αντίστοιχο του 2010 οφείλεται περισσότερο στη μείωση των διανυόμενων χιλιομέτρων.

Για την κατάσταση στους δρόμους και στα πεζοδρόμια ευθυνόμαστε όλοι μας. Την πιο σημαντική ευθύνη έχει βέβαια η πολιτεία και η τοπική αυτοδιοίκηση, με την απουσία συστηματικής εκπαίδευσης από τα σχολικά χρόνια, την παραβίαση βασικών κανόνων σήμανσης και συγκοινωνιακής τεχνικής, την πλημμελή συντήρηση, τη διαχρονική ελλιπή αστυνόμευση... Αλλά εξίσου σημαντική ευθύνη έχουμε και όλοι εμείς ως οδηγοί και ως πολίτες.

Στον δρόμο οφείλουμε να συμβιώνουμε όλοι αρμονικά τηρώντας τους κανόνες που εμείς έχουμε θέσει. Δυστυχώς, αντί γι' αυτό, συνήθως ισχύει το δίκαιο του ισχυροτέρου (κατά σειρά: φορτηγά, λεωφορεία, αυτοκίνητα, μοτοσικλέτες, ποδήλατα, πεζοί). Είναι εξάλλου αξιοπερίεργο το ότι, ενώ σε διάφορες χρονικές στιγμές οι ρόλοι μας αλλάζουν - οδηγός τη μία, πεζός την άλλη -, όταν επιστρέφουμε στον ρόλο του ισχυροτέρου ξεχνάμε τις αρνητικές εμπειρίες που είχαμε με την προηγούμενη ιδιότητα. Μπορεί δηλαδή να διαμαρτυρόμαστε για την έλλειψη πεζοδρομίων, αλλά αυτό δεν σημαίνει ότι δεν θα παρκάρουμε μπροστά σε στάση λεωφορείων αν δεν βρίσκουμε χώρο αλλού. Ομοίως φερόμαστε και στο πλαίσιο της οικονομίας. Μπορεί, π.χ., ως πελάτες να μη μας αρέσει όταν κάποιος εστιάτορας δεν μας δώσει απόδειξη, αλλά αυτό δεν σημαίνει ότι οι περισσότεροι θα είχαμε πρόβλημα να διαπραγματευτούμε την τιμή χωρίς απόδειξη με τον ηλεκτρολόγο αν αυτό μας ωφελούσε ή να αποκρύψουμε κάποιο δικό μας εισόδημα αν ήταν δυνατό.

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In Europe debt crisis, markets and masses wait for Merkel to blink

Los Angeles Times
November 29, 2011

In the white-knuckle game of chicken that the euro crisis has increasingly become, three players are staring one another down: the markets, the masses and Merkel.

As time runs out to save the shared currency and avert global economic pandemonium, the question of who will blink first is likely to become clear over the next few days while European leaders prepare for a crucial summit. All three players are refusing to budge, making it difficult to tell who will yield or whether their intransigence will result in mutually assured destruction.

On Tuesday, finance ministers from the 17 Eurozone countries agreed in Brussels on how to increase the firepower of their bailout fund and on releasing about $11 billion in emergency loans to Greece so that it can avoid bankruptcy. The meeting was a prelude to the leaders' summit next week at which France and Germany are expected to press for rewriting the rule book in order to knit the Eurozone more tightly together, centralizing control over national budgets and finances to ensure that members of the club stick to the rules on debts and deficits.

With time running short and investors scrambling for the exits, European leaders — especially German Chancellor Angela Merkel — are under intense pressure to do more than push for stronger fire safety codes when the building is already in flames.

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Προβόπουλος: «Δεν υπάρχουν περιθώρια αύξησης της φορολογικής επιβάρυνσης»

Καθημερινή
29 Νοεμβρίου 2011

Την έλλειψη αποφασιστικότητας στην εφαρμογή της δημοσιονομικής προσαρμογής, σε συνδυασμό με την μη περικοπή πρωτογενών δαπανών σε μόνιμη βάση, υπέδειξε ο διοικητής της Τράπεζας της Ελλάδος, Γεώργιος Προβόπουλος, ως τα αίτια της επιδείνωσης της ύφεσης, ενώπιον της Επιτροπής Οικονομικών της Βουλής.

Στο πλαίσιο αυτό, ο κος Προβόπουλος πρότεινε την εφαρμογή κατά το 2012, μιας πολιτικής συντομότερης ανάκαμψης με έμφαση στη μείωση των πρωτογενών δαπανών και δημιουργίας πρωτογενών πλεονασμάτων με ρυθμούς ακόμα υψηλότερους από τους προβλεπόμενους. Τόνισε δε, πως «δεν υπάρχουν άλλα περιθώρια αύξησης της φορολογικής επιβάρυνσης», οπότε η κυβέρνηση θα πρέπει να εστιαστεί στην πάταξη της φοροδιαφυγής.

Κατά την συζήτηση της Ενδιάμεσης Έκθεσης της Τράπεζας της Ελλάδος για τη Νομισματική Πολιτική 2011, ο κος Προβόπουλος εκτίμησε πως το μέγεθος της δημοσιονομικής προσαρμογής που επιτεύχθηκε το 2010 υπήρξε πολύ σημαντικό, συνοδευόμενο και από ορισμένες αξιόλογες διαρθρωτικές παρεμβάσεις - με κορυφαία τη μεταρρύθμιση του συστήματος κοινωνικής ασφάλισης. Η κατάσταση ωστόσο παραμένει κρίσιμη, καθώς εξακολουθεί να υφίσταται έλλειμμα αξιοπιστίας, δεδομένου ότι «η οικονομική πολιτική συχνά ασκείται αποσπασματικά, με διστακτικότητα, υπαναχωρήσεις και αναβολές, ή σύρεται από τις εξελίξεις αντί να τις προλαμβάνει».

Ο κος Προβόπουλος στηλίτευσε την επιλογή «οριζόντιων, ισοπεδωτικών λύσεων για τον περιορισμό των δημόσιων δαπανών, ενώ οι μηχανισμοί που εγγενώς παράγουν δαπάνες παραμένουν άθικτοι», αλλά και την «αναβίωση νοοτροπιών και συμπεριφορών του παρελθόντος, οι οποίες αντιμετωπίζουν ορισμένα θέματα ως αδιαπραγμάτευτα κάθε φορά που απειλούνται κεκτημένα».

Περισσότερα

Have EU Ministers Anything Up Their Sleeves?

Wall Street Journal
November 29, 2011

Another auction for Italy and another high yield. Will a meeting of EU finance ministers in Brussels later today help improve market conditions? Dow Jones's Geoff Smith and Martin Essex don't seem to think so.


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German Constitutional Court at Risk of Losing Power

Spiegel
November 29, 2011

Some see Germany's Federal Constitutional Court as as a guardian of democracy in the euro crisis, others see it as an obstacle to rescuing the currency. Now members of Chancellor Merkel's ruling conservatives want to lessen its power by amending the constitution -- to remove its jurisdiction over European issues.


German Federal Constitutional Court judge Udo Di Fabio only has a few weeks to go before he retires on Dec. 19. The former governor of the western state of Saarland, Peter Müller, was elected as his successor by the Bundesrat, Germany's upper legislative chamber representing the interest of states, last Friday.

But before he leaves, di Fabio, responsible for European issues at Germany's highest court, will have to finalize two sensitive rulings. His panel of judges will deliberate on Tuesday and Wednesday this week on two complaints submitted by the Bundestag, the federal parliament, affecting the relationship between the parliament and the government.

The judges must decide how heavily members of parliament are to be involved when the government once again tries to rescue Europe.

But behind the scenes, much more is at stake: the loss of power of the Constitutional Court in itself. The government and the court are locked in one of their biggest power struggles to date. One judge at the court described it as a "latent constitutional crisis." The government, he said, was trying to free itself of the restraints imposed on it by the constitution, and by the court.

The president of the court, Andreas Vosskühle expressed it a little more cautiously. The perception of his court was at present, he said "ambivalent in parts."

On the one hand, the court had been credited for ensuring that European unity remained on a secure legal and democratic footing, he said. But on the other hand, it "is seen by some as an obstacle in overcoming the current crisis."

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'Germany As Isolated on Euro as US Was On Iraq'

Spiegel
November 29, 2011

Prophecies of doom are mounting as the euro zone hurtles deeper into crisis, and the world pins its hopes on Germany to solve it. The country has been thrust into a leadership role it has avoided for decades, isolating Berlin from its partners, say commentators. Poland's foreign minister has implored the country to save the euro "for your own sake and for ours."


Market participants and EU politicians are starting to sound more apocalyptic in their warnings about the euro crisis as yet another make-or-break summit, on Dec. 8 and 9, draws near. Meanwhile the pressure on Germany to drop its opposition to euro bonds or a massive intervention in bond markets by the European Central Bank is intensifying by the day.

Polish Foreign Minister Radoslaw Sikorski resorted to dramatic rhetoric on Monday evening when he appealed to Germany to avert the collapse of the euro zone.

"There is nothing inevitable about Europe's decline. But we are standing on the edge of a precipice. This is the scariest moment of my ministerial life but therefore also the most sublime," Radoslaw Sikorski said in a speech in Berlin on Monday evening. "I demand of Germany that, for your own sake and for ours, you help it (the euro zone) survive and prosper. You know full well that nobody else can do it."

"I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity," he said, referring to the troubled history of relations between the two nations.

So far, though, Germany is resisting calls to allow the European Central Bank to conduct unrestricted purchases of government bonds issued by ailing euro-zone countries in order to push their borrowing costs down to sustainable levels.

It also remains opposed to jointly issued euro bonds. Its arguments are that the measures would remove the incentive on high-debt nations to get their budgets in order, would stoke inflation and would end up costing Germany too much.

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Europe is Not the United States

by Martin Feldstein

Project Syndicate

November 29, 2011

Europe is now struggling with the inevitable adverse consequences of imposing a single currency on a very heterogeneous collection of countries. But the budget crisis in Greece and the risk of insolvency in Italy and Spain are just part of the problem caused by the single currency. The fragility of the major European banks, high unemployment rates, and the large intra-European trade imbalance (Germany’s $200 billion current-account surplus versus the combined $300 billion current-account deficit in the rest of the eurozone) also reflect the use of the euro.

European politicians who insisted on introducing the euro in 1999 ignored the warnings of economists who predicted that a single currency for all of Europe would create serious problems. The euro’s advocates were focused on the goal of European political integration, and saw the single currency as part of the process of creating a sense of political community in Europe. They rallied popular support with the slogan “One Market, One Money,” arguing that the free-trade area created by the European Union would succeed only with a single currency.

Neither history nor economic logic supported that view. Indeed, EU trade functions well, despite the fact that only 17 of the Union’s 27 members use the euro.

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