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Greece: if austerity doesn't work... Try more austerity!

by talos Wed Jun 15th, 2011 at 03:14:41 AM EST


A government of accountants. In fact, a government of accountants working for foreign banking interests and against anything that might remotely legitimize them as a Greek government: The new medium-term programme for the Greek economy is out, and it is a monster that combines new onerous indirect tax hikes, new direct taxes on the poor and the middle classes (those that cannot avoid taxation), possibly the largest and most rapid privatization programme in the history of the world, and gigantic public expenditures cuts.

This is Socialism for the 21st Century - bankster collaborator style...

Another update from the eye of the storm - promoted by DoDo


Kathimerini: Cabinet approves fiscal plan, new tax hikes:

During a lengthy session the Cabinet approved the new austerity scheme, which seeks to raise via tax hikes and public spending cuts close to 6.5 billion euros this year. The plan runs to 2015, by which time the Greek government hopes to have saved almost 30 billion. Athens hopes that this will be enough to secure a second bailout that will reportedly be worth between 90 and 120 billion euros.

Although the details of the midterm plan will not be known until it is submitted to Parliament, sources said that one of the key measures will be an additional income tax, that will apply retroactively. Taking advantage of the fact that 2010 tax declarations have not yet been processed, the government will impose an extra tax of between 2 and 4 percent on incomes from last year. The supplementary tax will last at least until 2015.

Property tax will also increase. Currently, homeowners with properties valued at under 400,000 euros by the tax office are not taxed. However, the threshold will plummet to 200,000 euros under the new measures.

A rise in taxes on vehicles with large engine capacity is also on the cards, as is a rise in value-added taxes for restaurants and cafeterias. One issue that appeared to remain unresolved was whether the duty on heating oil would be increased so it matches the tax on gasoline.

And the sell-out will be extensive:

The international lenders cannot be not convinced just by OTE development and ask for tenders for large public companies within June. Government officials note that gas company DEPA is next in line, however conditions have changed, as two separate privatizations are expected to take place.

The first one refers to the privatization of DEPA as a trading company, with a stake of 32% to be sold, although sources reveal that the full package owned by the Greek state (65%) may be for sale....

...As regards the privatization of Hellenic Gas Transmission System Operator, it could attract the interest of banks, investment and pension funds, allowed by the European legislation. These investors do not obtain control of the networks, although they eye stable and relatively high yields.

The Greek government has already appointed advisers for the sale of DEPA, while Finance Minister Giorgos Papakonstantinou said on Tuesday that the privatization of Hellenic Petroleum within 2012 has been decided.

The government plans to proceed with announcements in the coming days, while it attempts to launch several tenders. It attempts to finalize the issue of the sale of four Airbus aircrafts, promote the renewal of mobile telephony licenses, the sale of Casino Mont Parnes and announcement of an impressive and non-disputable package of real estate assets.

The postal service, the Postal Bank (the "healthiest" of Greek banks by far, according to last year's stress-tests) the state lottery and football pools operator (all, profitable enterprises) are also on the list... And this, at a moment that the Greek stock-market is predictably tanking, means that these assets will be bought at fire-sale prices...

And that is not all:

Over the next few years, the civil service, which employs about 700,000 [Comment: more like 650.000 which is something like 15% of active work force], will be reduced by a quarter, Mr. Papaconstantinou said, adding that the ratio of one new hire for every five departures would become one for 10.

The minister also heralded cuts in Greece's spending in the military sector, which accounts for about 4 percent of gross domestic product.

The new taxes outlined by the minister include a graded "solidarity tax," ranging from 1 to 4 percent according to income, with an additional 3 percent tax on the income of civil servants. That money is to go toward an emergency fund for the swelling ranks of the unemployed, currently at 16 percent [Note: Yes. At the same time unemployment benefits will be slashed by up to  30% if I understood the plans correctly].

The incomes of civil servants have already been reduced up to 20 percent over the last year [Note: more like 30%, and that is probably an undercount], but the fact that their jobs are permanent puts them in a privileged position, the minister said.

"They don't face the same risk of unemployment as those in the private sector," he said.

An emergency tax will also be imposed on the owners of large properties, yachts and swimming pools, the minister added... [Note: in fact the emergency tax will affect mostly small owners and home owners (~80% of the population), since the threshold for the tax is reduced to such levels that most homes will qualify for the tax. I have seen no statements that it will affect large estates more]

... In an apparent nod to opposition parties that have vehemently opposed new tax increases, Mr. Papaconstantinou said the government was considering submitting a new tax bill in September that would cut sales and corporate taxes. [Note: Yes, the Minister is slashing even the lowest pensions and increasing heating oil taxes while entertaining the idea of lowering the taxable threshold by as much as 50%, while at the same time the corporate rate will be reduced. That's what this is all about eh?]

"We invite other parties to join a debate on this," he said.

The value-added sales tax paid by restaurants and cafes is set to go up this autumn to 23 percent from the current 13 percent.

...But how did the previous patch of austerity snake-oil fare? Well (as was predicted at the time by not quite radical analysts) not very impressively, in fact they were quite a disaster:

GDP is sky diving, worse even than, rather morbid already, expectations:

Gross domestic product tumbled 5.5 percent in the first three months of this year, the official numbers showed, far more than an earlier flash estimate of 4.8 percent.

Emilie Gay, an economist at Capital Economics, said that bodes ill for Greek attempts to meet targets for cutting the budget deficit which the international lenders have prescribed.

"We expect the economy to contract by 5 percent this year. For us this means Greece will fail to meet its targets as it did last year," she said

This slow motion bankruptcy, comes with its own set of positive feedbacks and is driving the unemployment rate to novel and dizzying heights...

Yet as austerity has demonstrably brought the country and its society near collapse, what has the Prime Minister understood from all this? Not much. He is in denial:

Boston.com: Greek PM: Choice is between austerity and default:

"We have taken a decision, that no Greeks should live through the consequences of a default and to change the country radically so that it is no longer under anyone's supervision and can stand on its own feet," Papandreou said in an interview with Sunday newspaper To Vima.

"Never in my life did I imagine that we would need to slash pensions in order for the state to continue to pay any pensions at all," he added. "We chose the least painful of two options: one (is) difficult, the other -- defaulting -- is catastrophic."

Predictably support for the Socialists is plummeting, even the opposition conservatives are near all time lows, and people protests are surging:

An overwhelming majority (87 percent) of those questioned said they believe that Greece is heading in the wrong direction and a similar percentage said they are unhappy with the standard of democracy and the quality of their lives.

According to Yiannis Mavris, Public Issue's managing director, one of the way in which this unhappiness is manifesting itself is in people protesting against the country's political system as a whole. The Indignant protests in Athens, Thessaloniki and other cities, where thousands of people have gathered every day for more than two weeks is a sign of this.

"Society's rejection of the party's of governance and the current generation of politicians is leading to widespread social mobilization," he said. "Last month, social participation in all kinds of events and forms of protest more than doubled from 12 to 25 percent, which equates to about 2.2 million citizens."

The socialists are at 27% in this poll, and the conservatives at 31% (both at or near historical lows), but note that this is a statistical projection, dividing up the undecideds between parties and ommitting the 40% who say that either they will not vote or spoil their ballots...

The funny thing is that the troika (along with the Greek Government) has come up with a new excuse for failure (something versatile enough to be used ad infinitum): Austerity measures were not adopted zealously enough, and society is resisting rape too loudly:

"After a strong start in the summer 2010, reform implementation came to a standstill in recent quarters," the European Union, the European Central Bank and the International Monetary Fund wrote in a summary of their recent assessment of Greece's efforts. The Associated Press obtained a copy on Thursday.

The three institutions, known as the troika, also cited "political risks" to the implementation of the budget cuts and privatization program in their findings, which were circulated among eurozone finance ministers Wednesday.

Those "doubts on the ability and the willingness of the Greek government and society to persevere in fiscal consolidation, and in restoring competitiveness" are the main reason Greece likely won't be able to access financial markets again next year, leading to serious financing gaps, the troika concluded.

This is, as one can easily discern, an unfalsifiable statement, as there will always be in the real world a gap between the ideal economic perscriptions and their implementation - not to mention opposition of those they hurt the most. No matter how harsh the austerity imposed, the problem must be, according to such dominant wingnuttery, that it wasn't applied efficiently enough - but next time it will! This is pretty much a large part of Greek Conservative and elite criticism of the government's programme as well...

Nonetheless as mentioned above, Greeks are filling up the streets (in an "indignado" style facebook initiated protest) in such numbers that everyone is worried. The government is scared that its MPs will be too frightened of the crowd to vote for the austerity package (which incidentally extends well beyond the current government's mandate and should therefore be voted by an extended majority - which it won't, in yet another of a long string of parliamentary coups that have made institutional due process a joke). The crowds filling the streets are focusing on two dates: the 15th, the first day of a series of strikes and labor actions, in which the "indignados" will join with the labor unions, in what promises to be a very large protest; and whenever the government decides to bring the "medium-term programme" to parliament, a date it is pushing along, fearing exactly that the pressure on its MPs from a crowd of half a million (which is the unofficial  target discussed at Syntagma) will make voting for the ECB mandated programme impossible for more than 7 "socialist" MPs, drowned in a Sea of People...

---------------------------------------------

Finally a couple of related items:

Michael Hudson's latest: How Financial Oligarchy Replaces Democracy: Will Greece Let EU Central Bankers Run Riot Over Sovereignty?

Financial lobbyists seek to distract voters and policy makers from realizing that "normalcy" cannot be restored without wiping out the debts that have made the economy abnormal. The larger the debt burden grows, the more economy-wide austerity is required to pay debts to banks and bondholders instead of investing in capital formation and real growth.

Austerity makes the problem worse, by intensifying debt deflation. To pretend that austerity helps economies rather than destroys them, bank lobbyists claim that shrinking markets will lower wage rates and "make the economy more competitive" by "squeezing out the fat." But the actual "fat" is the debt overhead - the interest, amortization, financial fees and penalties built into the cost of doing business, the cost of living and the cost of government.

When difficulty arises in paying debts, the path of least resistance is to provide more credit - to enable debtors to pay. This keeps the system solvent by increasing the debt overhead - seemingly an oxymoron. As financial institutions see the point approaching where debts cannot be paid, they try to get "senior creditors" - the ECB and IMF - to lend governments enough money to pay, and ideally to shift risky debts onto the government ("taxpayers"). This gets them off the books of banks and other large financial institutions that otherwise would have to take losses on Greek government bonds, Irish bank obligations bonds, etc., just as these institutions lost on their holdings of junk mortgages. The banks use the resulting breathing room to try and dump their bond holdings and bad bets on the proverbial "greater fool."

In the end the debts cannot be paid. For the economy's high-financial managers the problem is how to postpone defaults for as long as possible - and then to bail out, leaving governments ("taxpayers") holding the bag, taking over the obligations of insolvent debtors (such as A.I.G. in the United States). But to do this in the face of popular opposition, it is necessary to override democratic politics. So the divestment by erstwhile financial losers requires that economic policy be taken out of the hands of elected government bodies and transferred to those of financial planners. This is how financial oligarchy replaces democracy.

And - if one finds the time, it might be of interest to watch the documentary debtocracy: created by Aris Hatzistefanou a well known journalist who lost his job refusing to accept an employer-mandated pay-cut, funded by web contributions, it has become a "digital-samizdat" of the debt crisis, having been viewed easily over one million times already:

Make sure to activate the captions....

(photo by Stratos Safioleas)

Display:
120 billion on top of 110 billion last year.

Holy cow, where was Greece's debt again last year?

Less than 300 billion. 110% debt to GDP.

And they are throwing 230 billion in 3 or 4 years at Greece?

Varoufakis' plan looks like the right one--especially if it had been adopted last year.

by Upstate NY on Sun Jun 12th, 2011 at 10:24:34 PM EST
ECB loan the freaking money at 0%!! All standing debt.. even better, do not loan, just PRINT it. State " We prefer inflation at 4% in Europe than Greece down the memory hole" and request for a plan against tax evasion and capital flight for Greece in exchange...

And Greece.. request this inmediately to the ECB and Germany..and if they do not "surrender".. get THE FREAKING OUT of the euro!!! Capital control, create the ND coin, let it float in the international currency market and fix all the debt in your new unit of account... and default at will.

You will doing Spain the best gift of my lifetime.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Jun 13th, 2011 at 11:13:41 AM EST
[ Parent ]
In fact the ECB, I would imagine, is in excellent position to really help with "tax evasion and capital flight for Greece" if they want to. Yet I never heard of any such offer...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Mon Jun 13th, 2011 at 11:20:36 AM EST
[ Parent ]
They could lend a hand indeed.. but the Greek Central Bank (the former structure) is the key player you have to cure/develop. They are the one who should have enough manpower to do it.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Jun 13th, 2011 at 11:23:13 AM EST
[ Parent ]
There is an ongoing run on Greece which entails capital flight. The Bundesbank is open to capital controls but the time to apply them would have been a long time ago. Now the horse has left the barn.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 11:41:06 AM EST
[ Parent ]
Bloomberg: Portuguese, Irish Government Bonds Lead Decline on Greek Bailout Concern
German debt advanced on demand for the euro-region's safest assets, driving 10-year yields to a five-month low. Two-year German yields reached the lowest since March 17, while the spread between Portuguese 10-year bonds and German bunds widened to a record. Luxembourg Prime Minister Jean-Claude Juncker said a bailout for Greece must include "voluntary" investor participation. Costs to insure Greece, Ireland and Portugal's debt against default reached all-time highs.

...

Juncker is trying to bridge the gap between German Finance Minister Wolfgang Schaeuble, who has called for Greek bondholders to extend the maturities of their debt by seven years, and European Central Bank President Jean-Claude Trichet, who says imposing losses on creditors would be akin to a default. Trichet is scheduled to speak today in London.

...

[Bundesbank President Jens] Weidmann said the ECB was unwilling to turn its emergency bond-buying program into a "lasting institution" and that Greece's implementation of austerity measures and asset sales was crucial to securing the handout. He spoke yesterday in an interview with German newspaper Welt am Sonntag.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 12:13:40 PM EST
[ Parent ]
Were Papandreau and his cabinet not totally in the grip of Athens Syndrome, (move over, Stockholm Syndrome), they should counter-offer the right to the ECB to collect the last 10 years worth of avoided taxes on high net worth Greeks, especially those with assets abroad or on the high seas. The cabinet could pledge full cooperation in identifying these individuals and the ECB would have the choice of seizing part or all of the expatriated assets or taking the tax due on imputed incomes. While that might be a slight push on the laws involving tax collection, it would pale in comparison to the actions now proposed.

Going after those avoided taxes first would allow those who are significantly responsible for the revenue shortfall to do their part in helping Greece in its time of need. Were the Troika to demur, they should default, institute their own currency, etc. -- IMMEDIATELY!

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 13th, 2011 at 03:38:27 PM EST
[ Parent ]
Rollover. Since Greeece isn't using the capital markets, a lot of the bail-out is just roll-over of old debts. Of course that creates other problems.
by IM on Mon Jun 13th, 2011 at 04:54:39 AM EST
I think rollover is the crux of the matter.

This is how I see things going: Countries (Greece, Portugal, ...) will not be allowed to default on banks. Our Euro politicians are obviously in the pockets of banksters. Rollover means that creditors are being transferred from private institutions to public ones (indirectly Aryan states). After enough rollover default will be "acceptable". For me this will go on like this:

  1. Debt ownership is rolled from banksters to states
  2. PIGgys will be allowed to "restructure" when enough debt has been transferred to the balance sheets of the EU/northern states.

This means massive austerity on PIGgys (at least until enough rollover happened) followed by the rip off of northern states that will end up owning the debt that will be "restructured". Massive profits for banks, of course.

The minor problem, is that democracy might get in the way. The EU-politicians-puppets-of-banksters have until now been able to control the populace (both in debtor and creditor countries), but the pain that is being inflicted might be too much and somebody might rebel (Finland almost did it, lets hope somebody does it)...

by cagatacos on Mon Jun 13th, 2011 at 05:28:50 AM EST
[ Parent ]
Aryan States? Northern India will pick up the bill?

But that is unfair, the northern indian states bering much poorer then Greece.

by IM on Mon Jun 13th, 2011 at 06:05:08 AM EST
[ Parent ]


It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Jun 15th, 2011 at 05:32:22 AM EST
[ Parent ]
Actually, while the previous bailouts indeed shifted a lot of debt into public hand, in the current fight between Germany and everyone else, it is Germany's finance minister who calls for rollover by private banks (who in Germany were asked to not sell their Greek bonds until 2013 a year ago already) and the ECB and reportedly France who oppose the inclusion of privates most, ostensibly for fear that it will be interpreted by "the market" as forced default for private creditors and will lead to another assault on Portugal and the rest.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Jun 13th, 2011 at 07:54:04 AM EST
[ Parent ]
Does anyone here as an idea of the possible consequences of a default event? CDS and that stuff?

This new German position seems to suggest that they think it won't be systemic... Or that they are preparing to bail out local institutions?

by cagatacos on Mon Jun 13th, 2011 at 08:21:50 AM EST
[ Parent ]
CDS and that stuff?

See Jérôme's link.

This new German position

It aint' that new. I first noticed and reported it one month ago, but it generated scant analysis. (Regarding the 2010 bank moratorium on selling Greek debt, I first read of it in a German newspaper I bought on my travel last week.)

Regarding what this position suggests: methinks the motivation is not some big strategic consideration, but fear of the don't-spend-our-precious-tax-euros crowd in the own ranks and electorate.

preparing to bail out local institutions

Unlikely, IMHO. On one hand, as you argued, the shift from private to public hand already happened (the largest German owners of Greek debt are the EU bailout participant KfV and the publicly owned "bad bank" successor of the failed real estate bank HRE), the remaining exposure of private German banks in Greece is no more critical. In addition, the game regarding the Landesbanken (the supposedly ailing semi-public banks of federal Germany's states) is more complex: on one hand, state governments would like to keep them for financial autonomy, on the other hand, neoliberals would like to see them fail and be sold off to private banks. IOW I don't think there is a coherent strategy at work.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Jun 13th, 2011 at 08:57:49 AM EST
[ Parent ]
German exposure to Greece has dropped precipitously in the last year. The Germans can say anything they want at this point. Debt is down below $15 billion for German banks.
by Upstate NY on Mon Jun 13th, 2011 at 10:14:31 AM EST
[ Parent ]
In the last year, or the year before? Do you mean private banks? Sources? The less than €15 billion figure for private banks is in line with figures in the source discussed here, and I found higher figures for individual banks from 2009 and early 2010, but I wonder what figures are the source of your comparison.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Jun 13th, 2011 at 10:28:53 AM EST
[ Parent ]
Eurointelligence: Economic and political situation in Greece deteriorates - and it looks that Wolfgang Schäuble's proposal will not be accepted (9 June, 2011)
German banks reduce their exposure in Greece

According to Financial Times Deutschland German banks have reduced their exposure in Greece significantly in recent months. Citing Bundesbank statistics the paper claims German financial institutions held €10 bn at the beginning of this year down from € 16 bn in April 2010. German banks reduced their exposure by €4bn, €2bn of Hypo Real Estate are no longer accounted for in these statistics because they are now in a specifically designated bad bank. The paper points out that the banks reduced their exposure despite an informal standstill agreement in which they pledged to keep their exposure constant. According to those statistics the French banks are still the most exposed on Greece with government bonds worth €11.2 bn.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 10:54:28 AM EST
[ Parent ]
So private banks reduced their exposure by €4 billion despite the promise, making public banks (KfV, HRE bad bank, WestLB bad bank) the dominant debt holders from Germany.

Meanwhile, the boss of the Bundesbank spoke out against Schäuble's idea (in an op-ed which echoes the diary title in its main thesis):

In der aktuellen Debatte geht es allerdings darum, bereits etablierte Beziehungen zwischen Schuldnern und Gläubigern zu verändern. Hier gilt: Gegen eine freiwillige Laufzeitverlängerung ist nichts einzuwenden. Allerdings ist offen, wie hoch die Bereitschaft der privaten Anleger hierzu tatsächlich ist. Bei einer den Gläubigern aufgezwungenen Laufzeitverlängerung sind hingegen die Risiken wesentlich größer als die Chancen. So würde wohl ein Kreditereignis ausgelöst, was mit erheblichen Risiken für die Finanzmarktstabilität verbunden wäre. Die notleidend gewordenen Staatsanleihen entsprächen nicht mehr den Sicherheitenanforderungen der Notenbank. Zudem steht zu befürchten, dass die Anleger dann auch die Risiken der Anleihen anderer Länder höher einschätzen würden - was wiederum Finanzierungsschwierigkeiten dieser Länder und in der Folge erhebliche Turbulenzen auslösen könnte. Diesen Risiken, die unvermeidbar wären, wenn Griechenland von sich aus beschließen würde, seinen Verpflichtungen nicht mehr nachzukommen, stehen nur begrenzte positive Effekte gegenüber. Denn weil schon umfangreiche staatliche Hilfen geleistet wurden, sind die Bestände an griechischen Staatsanleihen im privaten Besitz - mit Ausnahme der griechischen Banken - längst nicht mehr so hoch wie oft vermutet. Daher wäre die faktische Kostenbeteiligung des privaten Sektors wohl begrenzt. Zudem würde die Solvenz Griechenlands, der Dreh- und Angelpunkt für den Erfolg der Hilfsmaßnahmen, durch eine erzwungene Laufzeitverlängerung kaum verbessert.The current debate is about changing already established relationships between debtors and creditors. Regarding this, we have nothing against voluntary duration extensions. However, the actual level of willingness of private investors to do this is an open question. In contrast, with a duration extension forced on the creditors, risks are significvantly greater than the chances. That way, a credit event would be induced, which would be connected to major risks for the financial market stability. The sovereign bonds turned ailing would no more fulfil the safety requirements of the reserve bank. In addition, it would have to be feared that investors would judge the risks of bonds of other countries to be higher, too - which culd again trigger financing difficulties for these countries and in consequence major turbulences. These risks, which would be unavoidable would Greece decide on its own to not follow up on its duties, are matched only by limited positive effects. Because, given that extensive state bailouts have already been given, the inventory of Greek sovereign bonds in private ownership - with the exception of Greek banks - is long since not as high as often assumed. For that reason, the factual cost participation of the private sector would likely be limited. In addition, the solvency of Greece, the focal point of the success of the rescue measures, would barely be improved by a forced duration extension.


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jun 14th, 2011 at 05:12:15 AM EST
[ Parent ]
Reuters: German insurers halved Greek debt exposure -report (9 May 2011)
German insurers halved their exposure to the sovereign debt of Greece in the year to March and slashed holdings in Irish, Portuguese, Spanish and Italian debt, according to a report for Germany's parliament.

Their exposure to Greek debt fell to 2.79 billion euros in March 2011 from 5.83 billion a year earlier; Irish debt holdings fell to 3.89 billion from 7.13 billion; Italian debt to 20.04 billion from 27.79 billion; Portuguese debt to 2.79 billion from 4.50 billion and Spanish to 9.06 billion from 20.93 billion.

The data came from a report on German insurers' exposure to sovereign debt prepared for the finance committee of the lower house or Bundestag, which was obtained by Reuters on Thursday.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 11:59:48 AM EST
[ Parent ]
What sort of discounts are those bonds trading at? That's billions of debit on their balance sheets, surely?

So, they have cut their own hair... sadly, this is of no benefit to the debtor nations.

It follows that the ECB is now stoutly defending the speculators who buy the bonds at steep discount, gambling that they will be repaid in full (or with a modest haircut, at worst).

So, the original lenders (the bond purchasers) have, to a great extent, been punished for their profligate lending. The citizens of the debtor nations are being punished for their profligate borrowing. The reason this is all so painful is that there is a moral imperative to pay in full the only good guys in the affair :  the bond speculators.

Have I got that right?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed Jun 15th, 2011 at 05:46:59 AM EST
[ Parent ]
The following table from Eurointelligence gives the yield for 10-year German bonds, and the spread of the other countries over it:
	   Yesterday's Briefing  This morning
   
France			  0.337 	0.328
Italy			  1.801 	  n/a
Spain			  2.422 	2.429
Portugal		  7.930 	7.527 
Greece			 13.839        13.526
Ireland 		  8.066 	7.686
Belgium 		  1.144 	1.099
Bund Yields		  3.026 	2.996


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 06:11:05 AM EST
[ Parent ]
If they held the bonds in a trading book which was marked to market the losses had been incurred already as the secondary market price of the bonds dropped. So, reducing the exposure by selling the bonds for cash does not incur an immediate loss and improves liquidity while giving up the possibility of recouping if the value of the bonds rises again.

If they held the bonds in an investment book on hold-to-maturity-accounting, they did indeed realise losses.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 09:57:31 AM EST
[ Parent ]
Which opens another interesting question: How much of this reduced exposure comes from transfers from the investment portfolio to the trading portfolio of the same bank?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 15th, 2011 at 09:59:11 AM EST
[ Parent ]
No part of it? The figures shown are summaries for private banks resp. insurers in Germany.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Jun 15th, 2011 at 10:05:23 AM EST
[ Parent ]
The "exposures" look like "total principal value". While the market value of some greek bonds has indeed collapesed by 1/2, that's not the case for other countries. So, while you could have "halved your exposure" to Greece by changing the accounting convention from investment to trading, you can't have reduced your Spanish exposure by 1/2 other than by selling (or failing to roll over maturing) bonds.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 10:09:28 AM EST
[ Parent ]
who is buying the marked-down bonds?

Is this inherently unknowable, because of the nature of the markets?

Can it be inferred or deduced in some way?

Any informed speculation as to who are these speculators?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed Jun 15th, 2011 at 11:56:41 AM EST
[ Parent ]
We know the cumulative amount of debt held by the ECB through its "Securities Market Programme". There's even a Bloomberg index for it.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 12:00:05 PM EST
[ Parent ]
ECB: Liquidity analysis
Outstanding amount * € mil. Date
74,912
10 Jun. 2011
* Settled amount as of given date

The outstanding amount at end 2010 was 4.8 billion (quoted here)

So the ECB has been very, very busy buying up distressed bonds at hefty discounts. Is the ECB the main creditor of the Greek government?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed Jun 15th, 2011 at 12:40:46 PM EST
[ Parent ]
Well, that greatly simplifies matters.

The private sector has now had its haircut. The ECB can commence with the rolling over at par.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 15th, 2011 at 12:47:06 PM EST
[ Parent ]
Trouble is, to "roll over" you have to buy new issues and the ECB cannot buy from Greece at issue.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 01:02:19 PM EST
[ Parent ]
That's true, but not something that cannot be solved by laundering the issue through the Hellenic Postal Bank.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 15th, 2011 at 01:34:49 PM EST
[ Parent ]
Can they purchase on the secondary market?


Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Wed Jun 15th, 2011 at 02:02:13 PM EST
[ Parent ]
Yes, but they don't want to.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 02:03:59 PM EST
[ Parent ]
Fortunately, that problem can be solved by the judicious application of political pressure.

Time to dust off the embarrassing photos of Trichet, or the stress tests of German banks...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 15th, 2011 at 02:22:29 PM EST
[ Parent ]
IOW, everything that doesn't promote Pillage is forbidden.

Greek 10 year bonds are now trading at 17.73% interest rate.  Two year notes are at 28.15%.  Somebodies are going to make a whacking pile of money using this in the Dollar/Euro Carry Trade.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Wed Jun 15th, 2011 at 02:26:21 PM EST
[ Parent ]
CDS spreads are at 16% but nobody wants the CDS insurance payouts to be triggered.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 03:06:40 PM EST
[ Parent ]
I could get somewhat miffed, at this point, at the "Let's Play Central Banker" game going on but there's nothing I can do about so there's no point.

Instead ...

LOOK!

It's a Bright Shiny Object!

(cool)

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Wed Jun 15th, 2011 at 03:47:35 PM EST
[ Parent ]
Just because you have a CDS swap supposedly covering your investment doesn't mean that your counter-party will be able to pay if it is triggered. After all, the whole point of CDS swaps was to enable you to treat risky junk as though they were AAA investments and relieve you of the obnoxious reserve requirements. No one ever thought they would have to pay up and many probably won't. So everyone is afraid to find out.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 15th, 2011 at 04:48:17 PM EST
[ Parent ]
Just because you have a CDS swap supposedly covering your investment doesn't mean that your counter-party will be able to pay if it is triggered.

Granted, but if you buy CDS protection it's because you expect to be paid in case it is triggered, right?

Right?

Um...

the whole point of CDS swaps was to enable you to treat risky junk as though they were AAA investments and relieve you of the obnoxious reserve requirements

Okay, let's parse this.

The following table applies for its risk-weighting:

Claims on sovereigns and their central banks will be risk weighted as follows:
Credit AssessmentAAA to AA-A+ to A-BBB+ to BBB-BB+ to B-Below B-Unrated
Risk Weight0%20%50%100%150%100%
A triple-A bank has a risk weighting of 20%.

Capital is 8% of risk-weighted assets.

So... take a Greek bond.

Before the crisis started, Greece was in the category where its bonds had a risk weighting of zero. So, holding a Greek bond costed no capital.

Now, Greece is rated below B, so its risk weighting is 150%, so the capital charge is 8% times 150% or 12% of notional.

You can buy a CDS at a 16% annual premium. The capital charge for the AAA CDS is 8% times 20% or 2%.

So, does it pay to free up 10% of notional from the capital charge, at the expense of 16% annually in CDS premia? I don't think so.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 05:07:21 PM EST
[ Parent ]
The example I had in mind was Goldman and AIG. AIG had lost effective internal controls when the former CEO departed and insured below reasonable cost. I do not know if buying a CDO makes sense to free up capital if the CDO is properly priced. I will bet that lots of CDO issuers on Greek debt would be happy to give back  premium they have received and then some to be off the hook on those CDOs. And even good rocket scientists make rockets that explode.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 16th, 2011 at 12:41:13 AM EST
[ Parent ]
Not CDO (Collaterallised Debt Obligation - a kind of Asset-Backed-Security) but CDS  (Credit Default Swap).

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 01:56:27 AM EST
[ Parent ]
Yes, I realized that, but yesterday was a day from Hell! I will make a post in the OT.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 17th, 2011 at 02:24:46 PM EST
[ Parent ]
The voluntary part of it, anyway...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 01:11:03 PM EST
[ Parent ]
The Security Market Programme refers to all bond purchases, not just of Greek bonds.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 12:53:52 PM EST
[ Parent ]
The outstanding amount at end 2010 was 4.8 billion (quoted here)

What?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 12:56:31 PM EST
[ Parent ]
The 4.8bn refers to the Covereb Bond Programme, which was a bailout of the German Pfandbriefe market and took place in 2009. The amount was

Covered Bond Purchase Programme
Outstanding amount *
€ mil.     60,268
Date     14 Jun. 2011
* Settled amount as of given date
What is the figure of 4.8bn you homed in on?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 12:59:09 PM EST
[ Parent ]
Sorry, I misquoted.

I linked the following FT blog by Emma Saunders, from 11 March. I picked up the covered bond purchase number (4.8 billion) instead of the securities markets programme number (13.1 billion), being the holdings of the ECB at end of 2010.

Eurosystem bond profit - correction | Money Supply | News, data and opinions on market-moving economics from the Financial Times - FT.com

To set the record straight, ECB national accounts show that the central bank held more like 18 per cent than 8 per cent of bonds bought to aid sovereigns in distress.
17.8 per cent of them as at end 2010, to be precise. At the end of December, the total stock of bonds purchased was €73.5bn, and 13.1/73.5 is 17.8 per cent.

(Sorry for the 10 billion euro difference.)

The takeaway point is that, in the 5-and-a-bit months to June 11, the ECB has increased its holdings in the securities markets programme phenomenally :

13 to 75 billion on the SMP (62 billion net purchases)

I've no idea what proportion of the stock of distressed sovereign bonds that represents... any ballpark numbers around?

So :

  1. the ECB claims to be buying up these junk bonds because the market is dysfunctional, i.e. is improperly pricing in the risk of defaults which ALL serious people know to be impossible (which is why they are booked without impairment, as "hold to maturity" zero-risk securities!)
  2. therefore the price of these bonds would be MUCH lower, and the yields higher, if the ECB did not intervene,
  3. I want to understand whether the ECB is buying these bonds directly from the banks, or whether speculators bought the bonds from the banks, then took fright and sold on to the ECB (in the aggregate) : i.e. are the speculators getting a haircut too?
  4. How does default insurance correlate to bond ownership? Is it necessary to own bonds in order to purchase insurance? Are the speculators buying insurance when they buy bonds?
  5. If the bulk of Greek debt is now no longer held by banks, but by speculators who hold insurance, then when the price drops, their interest is best served  by default, right? Or by full payment at term without rollover, but unserious people like these speculators know that this is impossible.

I've probably got hold of the wrong end of a stick that may not even exist; but I'm trying to follow the money here. And you people are writing my book for me.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Jun 16th, 2011 at 04:23:38 AM EST
[ Parent ]
The 13 billion figure is inaccurate or does not mean what you say it means.

Businessweek: ECB Fails to Sterilize Bond Purchases With Deposits (December 29, 2010)

The European Central Bank failed to fully neutralize the extra liquidity created by its bond purchases for a second time since the program began in May.

The Frankfurt-based ECB said today it drained 60.78 billion euros ($80.66 billion) from money markets via seven-day term deposits, almost 13 billion euros less than the 73.5 billion euros it intended to absorb.

...

The central bank started buying government bonds on May 10 in an effort to restore confidence in markets rattled by the sovereign debt crisis. To ensure the purchases don't swell the money supply and create inflation risks, the ECB each week drains the amount of extra liquidity it has created by offering banks seven-day term deposits.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:31:03 AM EST
[ Parent ]
Already in June 2010: ECB fixed-term deposit FAIL (FT Alphaville, June 29 2010)
The ECB failed to auction the €55bn in fixed term deposits it had planned to, and what it did auction (€31.86bn) was at a much-higher rate (0.54 per cent) than what it offered at the start of its Securities Markets Programme (SMP). The market seems to be holding tight to liquidity.


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:32:57 AM EST
[ Parent ]
Quoting from ECB's annual accounts (pdf, page 15):
The ECB's holdings of securities purchased under both programmes at the end of 2010 were
as follows:
 
                                  2010 €            2009 €               Change €
Covered bond purchase programme   4,823,413,246     2,181,842,083     2,641,571,163
Securities Markets Programme      13,102,563,262           0           13,102,563,262
Total                            17,925,976,508    2,181,842,083    15,744,134,425

...
and comparing with their current position

which is probably an apples-to-oranges comparison (holdings/outstanding amount?)

So I got the wrong end of the stick, there has not been a massive buy-up of bonds by the ECB in 2011. They have either decided that the markets are correctly pricing the bonds (in contradiction with their "mark-to-book" policy), or have renounced market intervention (recognition that they are powerless?)

In any case, if the ECB holds €50B of Greek bonds, they were mostly bought in 2010, and that comes out to more than a third of the total of SMP holdings (75B) and CBP (60B), no?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Jun 16th, 2011 at 04:59:28 AM EST
[ Parent ]
These must be direct purchases by the ECB directly.

The rest of the Securities Market Programme balance of 70 billion must be purchases by the National Central Banks.

The Eurosystem is a complicated monster.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 05:01:43 AM EST
[ Parent ]
Look at the Bloomberg graph
The ECB has not bought any significant amount of bonds this year.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:36:35 AM EST
[ Parent ]
I've no idea what proportion of the stock of distressed sovereign bonds that represents... any ballpark numbers around?

So :
the ECB claims to be buying up these junk bonds because the market is dysfunctional, i.e. is improperly pricing in the risk of defaults which ALL serious people know to be impossible (which is why they are booked without impairment, as "hold to maturity" zero-risk securities!)

If only. The ECB has given no sign that it believes in market failure, and it has not engaged in market-making of last resort. On why people book bonds without impairment, I can only say accounting conventions are bunk and one of the sources of the current crisis.
therefore the price of these bonds would be MUCH lower, and the yields higher, if the ECB did not intervene,
No, the ECB has made no effort to support prices.
I want to understand whether the ECB is buying these bonds directly from the banks, or whether speculators bought the bonds from the banks, then took fright and sold on to the ECB (in the aggregate) : i.e. are the speculators getting a haircut too?
These are open market operations. They buy them from anyone willing to sell to them. I suspect only banks holding the bonds in their marked-to-market "trading book" would have sold. But the "trading book" puts them in the "speculator" category.
How does default insurance correlate to bond ownership? Is it necessary to own bonds in order to purchase insurance? Are the speculators buying insurance when they buy bonds?
CDS is explained to the public as insurance but it isn't. In the US, famously, it was not regulated as insurance (which would have required people to own the bond in order to buy it - or at least it would have made payout of the CDS conditional on presenting the defaulted bond) in order to allow the market to be more liquid and the CDS volume to be unconstrained. Some people speculate purely on CDS (basically, on the CDS spread noise) without touching the bonds at all.
If the bulk of Greek debt is now no longer held by banks, but by speculators who hold insurance, then when the price drops, their interest is best served  by default, right? Or by full payment at term without rollover, but unserious people like these speculators know that this is impossible.
The bulk of Greek debt is, as ever, held by Greek banks for their position-making. Basically, banks can pad their balance sheets with government bonds in the absence of other assets. It is in this sense that JakeS says that sovereign bonds are not debt instruments but monetary policy instruments
I've probably got hold of the wrong end of a stick that may not even exist; but I'm trying to follow the money here. And you people are writing my book for me.
You're grasping at straws with your "follow the money".

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:46:44 AM EST
[ Parent ]
Migeru:
You're grasping at straws with your "follow the money".

Guilty as charged...

I'm still looking for a tangible villain. Given the mechanical inevitability of default for Greece (barring a deus-ex-machina from the ECB, which I think we can agree is not on the cards), the smart money is presumably gaming the ECB's stupidity for all it's worth.

The most obvious way of doing this is by buying CDS.

Therefore, anyone taking a major bet on Greek default, through a CDS position, may wish to influence outcomes by blocking off all alternatives to full payment (impossible) or default (jackpot).

Ratings agencies which declare "anything which is different from full payment (e.g. voluntary rollover) is equivalent to default" would seem to fit with such a strategy.

The head of a ratings agency who secretly held a massive CDS position might make a satisfying villain.

Just thinking out loud here.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Jun 16th, 2011 at 05:23:16 AM EST
[ Parent ]
Then you have to ask yourself who the sellers of the CDS are.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 05:25:25 AM EST
[ Parent ]
in a default scenario. If I have understood correctly, they are US banks, who must somehow trust implicitly that the ECB will not allow default. Or that the US government or Fed will not allow the ECB to allow default?

My head hurts.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Jun 16th, 2011 at 06:53:19 AM EST
[ Parent ]
They are not the suckers. They are collecting CDS premia (16% annual rate on Greek CDS right now) without being capitalised for paying out and everyone is doing their best that there isn't a default so they don't have to pay.

If you sell insurance with no intention of paying out, is that not fraudulent?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 07:09:54 AM EST
[ Parent ]
so if they have any overt or covert influence to exercise over events in my ficticious world, it will be working against the interests of my hypothetical speculator/credit rater. They would NOT want "voluntary" bond rollover to trigger a credit event.

This is all a matter of parasitical side-bets on the main events of Euro liquidity/solvency matters, but the stakes are high.

It could all get quite violent.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Jun 16th, 2011 at 09:08:56 AM EST
[ Parent ]
I keep forgetting you're not trying to figure out what's going on but you're actually actively looking for a pulp fiction villain so you can write a crime novel.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 09:21:39 AM EST
[ Parent ]
would be nice, but way beyond my intellectual capacity.

Writing a crime novel is easy, comparatively speaking. But I would prefer that it were plausible and didactic in nature.

It's a variation on the old "insure and burn" scam. No, it's actually more like match-fixing : placing bets on outcomes, and reducing the uncertainties.

I would prefer if I could identify actors who stand to gain from the Euro crisis itself, rather than CDS side-bets, and who might therefore wish to influence outcomes. But I haven't identified anyone yet : it looks like a lose-lose-lose situation, a seriously negative-sum game.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Jun 16th, 2011 at 11:59:24 AM EST
[ Parent ]
The you need to up your stakes and, instead of writing a pulp crime novel, writing a Twilight of Civilization epic tragedy.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 12:40:04 PM EST
[ Parent ]
Playing to my strengths.

Götterdammerüng, and lots of humping among the ruins.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Jun 16th, 2011 at 01:12:27 PM EST
[ Parent ]
Götterdämmerung :-)

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 01:21:25 PM EST
[ Parent ]
I like the way Dammerüng sounds :D

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 03:42:35 PM EST
[ Parent ]
I would prefer if I could identify actors who stand to gain from the Euro crisis itself, rather than CDS side-bets, and who might therefore wish to influence outcomes. But I haven't identified anyone yet : it looks like a lose-lose-lose situation, a seriously negative-sum game.

In terms of money? Certainly.

In terms of goods and resources? Absolutely.

In terms of power? No. Power over others is a zero-sum game.

But of course this is a case where reality is unrealistic. It is hard to make a character in a book motivated by power over other people without having him become a caricature sociopath.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 16th, 2011 at 03:24:49 PM EST
[ Parent ]
Migeru:

If you sell insurance with no intention of paying out, is that not fraudulent?

That is the advantage for the buyer of having insurance regulated. But since this is not insurance, I guess pretending to insure would be the correct name of the service.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Jun 16th, 2011 at 11:24:23 AM EST
[ Parent ]
Well, the CDS buyers are also only pretending to buy insurance since
the whole point of CDS swaps was to enable you to treat risky junk as though they were AAA investments and relieve you of the obnoxious reserve requirements


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 11:49:58 AM EST
[ Parent ]
Communism: The workers pretend to work and the state pretends to pay them.

Capitalism: CDS buyers pretend to buy insurance and CDS sellers pretend to sell it.

Hm, not as catchy.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Jun 16th, 2011 at 04:16:06 PM EST
[ Parent ]
Is the ECB the main creditor of the Greek government?

That's what I read somewhere last week; to the tune of €50 billion.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Jun 15th, 2011 at 02:27:02 PM EST
[ Parent ]
German banks most exposed to Greek debt, data show - Hurriyet Daily News and Economic Review
Greece's total debt is 340 billion euros, according to data compiled by Bloomberg. The 7.4 billion euros in Greek government bonds held by FMS Wertmanagement, which is winding down assets of Germany's Hypo Real Estate Holdings, weren't included in the BIS figures because FMS isn't a bank. Neither were the holdings of the European Central Bank, or ECB, estimated at 50 billion euros by Citigroup. Greek banks own about 60 billion euros of the country's debt, according to Goldman Sachs.


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Jun 15th, 2011 at 02:33:27 PM EST
[ Parent ]
The Greek government has to know who to pay the coupons to, don't they?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 12:02:29 PM EST
[ Parent ]
As I posted here, there may be a play between different groups of banks:


it's worth noting that once you account for the substantial payouts that US agents will have to make to European creditors in the case of a default by one of the PIGs, financial institutions in the US have roughly as much to lose from default as those in France and Germany. (See the figures in blue in the table above.) The apparent eagerness of US banks and insurance companies to sell default insurance to European creditors means that they will now have to substantially share in the pain inflicted by a PIG default.

(...)

First, US and European financial institutions are likely to have very different incentives as negotiations regarding debt restructuring and reprofiling proceed. US banks and insurance companies are surely delighted with the " soft restructuring" that is currently being discussed. Such a partial default would probably not trigger default insurance payments, and so the pain would be borne almost exclusively by European institutions. On the other hand, some time soon it seems likely that European creditors will begin to prefer a "hard restructuring" that would require default insurance payouts from the US institutions that sold such insurance. Given how strikingly one-sided the net default insurance payments will be (from the US to Europe), it's easy to imagine how that could shape future negotiations over debt relief for the PIGs.

It's a bit strange to see the French government apparently protecting the Us banks - unless they know something about French banks having sold CDSs as well which are not reflected in BIS data?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Mon Jun 13th, 2011 at 08:03:11 AM EST
[ Parent ]
Just 120 Bil? Peanuts no (at a global scale)? For all the talk, I was expecting Armageddon numbers...
by cagatacos on Mon Jun 13th, 2011 at 09:14:16 AM EST
[ Parent ]

The minor problem, is that democracy might get in the way. The EU-politicians-puppets-of-banksters have until now been able to control the populace (both in debtor and creditor countries), but the pain that is being inflicted might be too much and somebody might rebel (Finland almost did it, lets hope somebody does it)...

The problem is that the only way the populace can reject the current plans is through more or less racist national-populist movements who largely have the wrong target and mostly focus anger on brown people rather than banks.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Mon Jun 13th, 2011 at 08:04:55 AM EST
[ Parent ]
Indeed. Portugal is the exception here, by the way. It is only the (hard) left that is calling for a restructure. Interestingly some members of the newly elected conservative party are openly talking that restructuring is unavoidable. They are typically told to shut up afterwards, but clearly they are aware of the situation.

But back to your (more important) point: The fact is that there is, in most countries, no decent parties arguing for restructuring should send shivers through everybody's spines. I think that there is a serious risk that an "ugly" party will get into power somewhere (though, like in .NL, they might already be there in some form).

This fascist narrative (I think the word is appropriate here) can be the source of much grief and sorrow in the near future...

by cagatacos on Mon Jun 13th, 2011 at 08:19:03 AM EST
[ Parent ]
But back to your (more important) point: The fact is that there is, in most countries, no decent parties arguing for restructuring should send shivers through everybody's spines.

It should also clue them that the "decent" parties are, unfortunately, useless and that they need a new reform party pledged to tear down the existing system and investigate all potentially prosecutable offenses. The best solution might be for disaffected voters to all join one existing splinter party and revise its agenda to create such a "reform" party. If enough banded together and announced their intention of doing so, they might have splinter parties lining up to compete for the privilege of lending their current status to this new purpose.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 13th, 2011 at 11:01:42 PM EST
[ Parent ]
Unfortunately, the Social Democrats are playing for the enemy here...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 08:39:42 AM EST
[ Parent ]
The plan seems to be rolling over privately held debt with public money, at least until Merkel's magical date of 2013.

But in order to get that past the public and the politicians in creditor countries they have to go through the kabuki of throwing virgins into the volcano.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 08:29:07 AM EST
[ Parent ]
Yanis Varoufakis: The Greek Crisis and the Threat to Political Liberalism: A cautionary tale for Ireland, Portugal, the whole of Europe
If 1929 has taught us anything, it is that a major (capital `c') Crisis poses a lethal threat to (a) currency unions (e.g. the Gold Standard then, the euro today) and (b) political liberalism. The latter threat has, so far, featured only as a projection (see here for a relevant argument), rather than an observed reality. In a recent post I argued that the EU's recent demand that Greece's assets be privatised by a junta of foreign officials was the first step toward the dismantling of the EU's basic democratic principles. Today, in this post, I  warn about an even more radical threat, this time to basic liberal tenets about the rights of private citizens. My warning will take the form of a true story, to which I am an eyewitness. It should, I submit, send shivers down the spine of all European (small `l') liberals. Precisely because this is a seriously worrying tale, I shall include no commentary: just a blow by blow account of facts.

...

So, what was the latest development that egged me on to write this post? This coming Thursday (16th June 2011) a well thought of Greek publisher will be launching a new Greek book of mine in the splendid gardens of the Byzantine Museum (in downtown Athens). It is a Lexicon in which I have compiled definitions and explanations of the terminology of the present economic and political crisis (anything from the word `crisis' to `CDS', `CDO' and the like). Well, this morning my publisher called me with hideous news. For the first time in living memory the three major newspapers of the land (Vima, Kathimerini, Eletherotypia) have failed to publish in their Sunday editions (or even to mention) the press release regarding my book's launch. What makes this even more astounding is that the book will be launched by senior, well established figures: Alekos Papadopoulos (the former Finance Minister of Greece, who was the only Fin Min under whose watch Greece's debt shrank significantly); Christos Chomenidis (one of Greece's renowned new generation novelists) and Nikos Xydakis (the editor in chief of one of these newspapers, Kathimerini, which refused to mention the book's launch).

When I asked my publishers how they interpreted this `silence', the answer came back crystal clear: It is nothing short of an old fashioned purge.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 08:31:35 AM EST
We cannont say we weren't warned: Barroso to plebes: nice indebted democracy you have there... by Migeru on June 17th, 2010
Europe's Economy 'Returning to 1930s' - BusinessWeek
"This is extremely dangerous. This is 1931, we're heading back to the 1930s, with the Great Depression and we ended up with militarist dictatorship," the general secretary of the European Trades Union Congress (ETUC) said in an interview with EUobserver. "I'm not saying we're there yet, but it's potentially very serious, not just economically, but politically as well."

...

"I had a discussion with Barroso last Friday about what can be done for Greece, Spain, Portugal and the rest and his message was blunt: 'Look, if they do not carry out these austerity packages, these countries could virtually disappear in the way that we know them as democracies. They've got no choice, this is it'."



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 08:33:51 AM EST
[ Parent ]
We have indeed been warned repeatedly by the ECB, too:
Bini Smaghi: the euro is not too strong - Il Sole 24 ORE

According to our analysis, debt restructuring would result in the failure of most of the Greek banking system, which holds bonds of that country and is largely guaranteed by the state. Greek banks would no longer have access to refinancing with the ECB and would have to reduce their lending to households and businesses. Not to mention finally the impact on individual investors, pension funds and other Greek institutions that hold their savings in government bonds. The Greek economy would be on its knees, with devastating effects on social cohesion and maintenance of the democratic system in that country. Ultimately it's up to Greece to decide the way forward, given that it will face the worst of the consequences. But other countries should avoid pushing Greece towards disaster.

EUObserver: ECB warns of threat to Greek democracy (15.04.2011)
ECB board member Lorenzo Bini Smaghi warned on Thursday: "According to our analysis, a debt restructuring would result in the failure of a large part of Greece's banking system."

He did not mince his words, saying that Greek democracy would be threatened by such a move.

"The Greek economy would be on its knees, with devastating effects on social cohesion and the maintenance of democracy in that country," he told financial daily Il Sole 24 Ore.

He also subtly told Berlin to not push Athens into a corner.

"Ultimately it's up to Greece to decide the way forward, given that it will suffer the worst consequences. But other countries must avoid pushing it towards a catastrophe."



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 08:51:04 AM EST
[ Parent ]
Last December:
By Lorenzo Bini Smaghi (member of the Executive Board of the European Central Bank)

We're doomed.

Oh, and Godwin, Godwin indeed:

Migeru:

FT.com: Europe cannot default its way back to health by Lorenzo Bini Smaghi
Europeans have not forgotten the devastating effects that the expropriation of wealth, such as that carried out during the two world wars by way of inflation or defaults, may have on the economic and social fabric. There is awareness that, in the end, it may be less costly to tackle excessive public debt with the traditional remedies - that is, achieving an adequate level of primary surplus - rather than looking for quick fixes. There is also awareness that, without restoring economic growth, the debt burden cannot be reduced over time. This requires major structural reforms aimed at improving the functioning of the labour, capital and goods markets.

...

To understand what is happening in Europe, economics textbooks are useful but the history ones even more so.

The writer is a member of the Executive Board of the European Central Bank

(h/t Eurointelligence)
Apparently according to this guy the "devastation of the economic and social fabric of Europe" during the two world wars is associated by "Europeans" with "expropiation through inflation and default".


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 08:53:37 AM EST
[ Parent ]
afew:
Bini Smaghi:
a breakdown of the financial, economic, and social structure of our societies.
No less. So that is what our wise rulers are all so afraid of.

In order to avoid this

Bini Smaghi:

major structural reforms
of the "financial, economic, and social structure of our societies" are of course necessary.

So it would appear everything is going to be restructured anyway. Just depends in whose favour.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 09:02:19 AM EST
[ Parent ]
Must... invade... Poland...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jun 16th, 2011 at 11:55:41 AM EST
[ Parent ]
But they have to print money first!

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 12:40:39 PM EST
[ Parent ]
Top quote from here.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 09:21:16 AM EST
[ Parent ]
last week:
One of my currently favourite quotes: from Political Aspects of Full Employment (Michal Kalecki 1943)
One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.

The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism.  The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed.  In a democracy, one does not know what the next government will be like.  Under fascism there is no next government.

The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments.  Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp.  Political pressure replaces the economic pressure of unemployment.

When neoliberals look at this, they conclude that Keynesianism causes totalitarianism, as did Hayek in The Road to Serfdom. [From Wikipedia]
Significantly, Hayek challenged the general view among British academics that fascism was a capitalist reaction against socialism, instead arguing that fascism and socialism had common roots in central economic planning and the power of the state over the individual.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 09:04:42 AM EST
[ Parent ]
man that hayak has a lot to answer for, for sure.

another perverse thinker that had such a destructive effect on history through paranoia...

from austria.

must be in the water... diary about the formation of political philosophy in austria's history? what thoughtstreams did these lunatics drink from to get to their erroneous conclusions?

DoDo?

perhaps geography has less to do with it than i think...

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Tue Jun 14th, 2011 at 03:18:49 PM EST
[ Parent ]
My guess would be the drastic collapse of the Habsburg Empire in 1918. Today's little Austria is a successor state to the Habsburg Empire that once led the German Empire, dominated Europe and spanned the New World.

Imagine if Great Britain had been soundly defeated in 1918 and forced not only to abandon its empire but to break up into Ireland (whole of), Scotland (to furthest extent and then some), Wales, Cornwall, and every little region with ambitions. Leaving London with a crippled little state, unable to even lord it over the neighbours, having to take orders from Edinbourgh or be the target of punishment expeditions.

How much hate, bile and longing for the old world would that little England produce?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Jun 16th, 2011 at 04:09:47 PM EST
[ Parent ]
Sounds nice, but "the Austrians" were a sect of liberals who had little to do with imperial nostalgia, and the development of their views as we know them today are probably not unaffected by their long-time residences and high standing in Anglo-Saxon countries.

It is also interesting to note that although the Austrians gathered at the university of Vienna, their godfather, Carl Menger, as well as leading figure Ludwig von Mises, came from Galicia (the part of Poland first grabbed by the Habsburgs, later by Stalin, and now part of the Ukraine).

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 16th, 2011 at 04:29:43 PM EST
[ Parent ]
Good thing it was just a guess then :)

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!
by A swedish kind of death on Thu Jun 16th, 2011 at 04:34:20 PM EST
[ Parent ]
Do you think there are unions willing and capable of staging "takeovers" (plant occupations?) of privatized companies?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Jun 13th, 2011 at 09:05:58 AM EST
More to the point, will the police be willing to shoot them when they do?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 13th, 2011 at 02:19:17 PM EST
[ Parent ]
Is the government cutting police salaries by 40%, too?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 02:32:10 PM EST
[ Parent ]
Yep, the cuts were horizontal and no exceptions were made. And a policeman (crime lab, not your average uniformed policeman, but still...) neighbor of mine was telling me a month ago that the morale among police officers is very low, and everyone lacks motivation, as they see themselves involved in a job that is becoming increasingly more dangerous and life threatening, while they are suffering repeated pay-cuts and are confronting people they have no wish to confront. He told me that "one of these days, in the next 'siege' of parliament, someone in the first row of riot police guarding the building will 'slip' and then no one will be able to stop, or interested in stopping, anyone..."

This is not necessarily good news, the police has been very cosy with the very far right and the ones still motivated are disproportionally the more extreme right wing police officers...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Mon Jun 13th, 2011 at 07:39:52 PM EST
[ Parent ]
They've got to be kidding
one of the key measures will be an additional income tax, that will apply retroactively. Taking advantage of the fact that 2010 tax declarations have not yet been processed
And, let me guess, this is where the foreign tax collectors come in...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 09:39:59 AM EST
Gross domestic product tumbled 5.5 percent in the first three months of this year, the official numbers showed, far more than an earlier flash estimate of 4.8 percent.

As predicted (tho' finding the comments would take more time than I can afford to spend.)

The Greece economy is a network supported by productive consumers using their discretionary income to purchase goods and services offered by other productive consumers.  This network comprises 70%, or so, of a nation-state's economy.  It's Plain & Fancy impossible to increase economic activity in this network by reducing the amount of productive consumer's discretionary income.  

This gets real simple: if you ain't got no money, you can't spend what you don't have.  

Thus decreasing productive consumer's discretionary income MUST decrease micro-economic activity and if the Financial Interests depend -as they do - on micro-economic activity to provide the flow of Cash to pay off debt economic polices and regulations decreasing the ability of an economy to pay interest and principle of accumulated debt is stupidly counter-productive.  

I realize this analysis is 180 degrees opposed to NCE macro-economic La-La Land prescriptions so I can only humbly suggest they write down their little mathematical equations on EU-approved A4 paper, fold the paper until it is all corners ... and shove them up their asses.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Mon Jun 13th, 2011 at 11:52:28 AM EST
You don't understand:
The main difference between empirical DSGE models and the more traditional macroeconometric models (such as the AWM) is that both the parameters and the shocks to the structural equations are related to deeper structural parameters describing household preferences and technological and institutional constraints.

These micro foundations have three advantages:

  • They provide a theoretical discipline on the structure of the model that is being estimated, which may be particularly helpful in those cases where the data themselves are not very informative, for example regarding the long-run behaviour of the economy or because there has been a regime change.
  • Being able to relate the reduced-form parameters to deeper structural parameters makes the use of the model for policy analysis more appropriate, i.e. less subject to the Lucas critique, as those structural parameters are less likely to change in response to changes in policy regime.
  • Micro-founded models may provide a more suitable framework for analysing the optimality of various policy strategies as the utility of the agents in the economy can be taken as a measure of welfare.

For these reasons, staff at the ECB and the Eurosystem have started to develop empirical DSGE models for monetary policy analysis. The Smets-Wouters (2003) Model is an example of such a medium-sized DSGE model, which has been estimated on the basis of quarterly euro area macro data. The model features three types of economic agents: households, firms and the central bank. Households decide how much to consume, how much to invest and how much to work and at what wage. Firms employ workers and capital and decide how much to produce and at what price to sell their products.


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 12:02:06 PM EST
[ Parent ]
Dynamic Stochastic General Equilibrium does not Model the phenomena.  

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Tue Jun 14th, 2011 at 11:52:58 AM EST
[ Parent ]
Don't be unserious.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 14th, 2011 at 11:53:41 AM EST
[ Parent ]
wait a minute.  AH ... found it:

OK, NOW I'm ready

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Tue Jun 14th, 2011 at 05:03:34 PM EST
[ Parent ]
But it isn't impossible to increase bond yields.

Not wanting to make an obvious point here, but THIS IS NOT ABOUT THE ECONOMIC HEALTH OF GREECE.

This is basically economic rape. It's the equivalent of hiring some pointy-haired hatchet man to come in and "rationalise" a company by firing everyone and moving whatever productive capacity is left to slave factories in the Marshall Islands.

For every drop in "costs", the short-term share price/bond yield increases. And that counts as a win.

When there's no longer any company left to rationalise, the process starts again somewhere else.

Only now it's happening to nation states rather than corporations.

And the solution is the same as the solution to M&A rape - worker occupation, and marching orders for the pirates.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 13th, 2011 at 12:36:33 PM EST
[ Parent ]
Bretton Woods Project: IMF's European austerity drive goes on despite failures and protests
In early April, German magazine Der Spiegel reported that the IMF had finally recognised that Greece needed to restructure its debt (see Update 75, 73, 72) because the austerity programme was not going to be successful. The magazine said that the Greek government, the European Central Bank and other major EU countries rejected the IMF position in programme negotiations. After the report was published, the IMF denied that it had ever suggested restructuring, but bond markets were spooked.

In early May, 400-plus activists from Greece and across the world met in Athens to confront the current debt crisis of the European periphery and plan international solidarity and coordinated action against fiscal austerity. The gathering discussed alternatives such as debt audits and debt repudiation, including presentations on similar experiences in Ecuador, Argentina and Brazil. The concluding Athens declaration on debt called for citizens in Europe to "challenge the austerity policies of the EU and the IMF, oppose international financial power, and reject the slavery of debt. We call on people across the world to show solidarity." There is now mounting political pressure for an independent debt audit commission and financial reform in Greece as well as a push for similar calls for debt justice in other European debtor states such as Ireland.

During the end May IMF-EU review, the main square in Athens, situated in front of the parliament building, saw a giant sit-in turn into a semi-permanent encampment. With at least 30,000 in the square daily and as many as 200,000 on a weekend in early June, the protest is being compared to the social movements that toppled the governments in Tunisia and Egypt. A 'people's assembly' voted that they would "not leave the squares until those who compelled us to come here go away: governments, the Troika (EU, ECB and IMF), banks, the IMF memoranda, and everyone that exploits us. We send them the message that the debt is not ours."



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 12:04:27 PM EST
Irish Independent: Bond yields soar as Germany digs in heels over Greek bailout (11 June 2011)
Germany is insisting that bondholders should have to share the cost of a second Greek rescue, defying the views of ECB president Jean-Claude Trichet who is opposed to a policy he believes would damage financial confidence inside the eurozone.

...

[Mr Schaeuble] wants bondholders to extend the repayment date on Greek debt by seven years. [He] is pressing ahead with his policy despite ratings agencies saying it's likely to be classes as a default by Greece.

...

Mr Trichet said he would back a plan that sees bond investors voluntarily agree to buy new Greek bonds when the ones they already hold mature, but nothing more drastic.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 12:10:29 PM EST
Oddly, I read last week that Enda Kenny was prescribing that smaller or secondary Irish banks holding the nation's bonds be dealt haircuts. So, here we have governments allowing defaults on entities that presumably have very low exposure to credit default contracts. This literally means that a credit default contract in effect operates as a form of blackmail or racketeering over economies. It's like the mob--you don't want to pay us? See what happens! But if you're small time player, you will be bumped.

Better yet, the big fish will swallow the small banks when the haircut is issued to the guppies.

by Upstate NY on Mon Jun 13th, 2011 at 01:30:34 PM EST
[ Parent ]
Only the biggest investment banks issue CDS. Widows and orphans buy bonds. Do the math.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 02:31:22 PM EST
[ Parent ]
Oddly, I read last week that Enda Kenny was prescribing that smaller or secondary Irish banks holding the nation's bonds be dealt haircuts.

Are we talking about specific banks or about subordinated debt holders regardless of who they are?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon Jun 13th, 2011 at 04:27:30 PM EST
[ Parent ]
Banks. He specifically mentioned banks.
by Upstate NY on Mon Jun 13th, 2011 at 11:00:00 PM EST
[ Parent ]
Value of Greek debt cut to record low | European Voice

Greece is now the country with the world's lowest credit-rating after its debt was downgraded today.

Standard and Poor's, the credit-rating agency, lowered Greece's long-term sovereign debt rating by three notches, indicating that it considers a default to be highly likely.

With eurozone politicians considering involving private creditors in a new bail-out and extending maturities on existing loans, Standard and Poor's said this would be classed a default.

In a statement this evening, Standard and Poor's said: "In our view Greece is increasingly likely to restructure its debt in a manner that, under the conditions of any package of additional funding provided by Greece's official creditors, would result in one or more defaults under our criteria."

The announcement sent Greek ten-year bond yields to more than 17%, almost the highest level seen since the introduction of the euro.

How many billions for this result?

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Jun 13th, 2011 at 03:59:51 PM EST
There's an irony here. Greece is far from the poorest, or the most precarious economy in the world. But the actions of the ECB and the rest of the EU - alongside the credit-rating agencies rather make this a self-fulfilling prophecy...
by Metatone (metatone [a|t] gmail (dot) com) on Mon Jun 13th, 2011 at 05:29:07 PM EST
[ Parent ]
Do I get this right? Is the mighty ECB afraid of rating agencies junk-rating the Greek bonds on its books?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jun 14th, 2011 at 05:21:31 AM EST
[ Parent ]
That's one way to put it.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 14th, 2011 at 05:33:29 AM EST
[ Parent ]
Greek Parliament Preparing Evacuation Tunnel Ahead Of Wednesday Vote On IMF Bailout, General Strike And Parliamentary Blockade  zero hedge

June 15, the day of a general strike in Greece, is also the day when the critical "mid-term agreement" between the insolvent country and the Troica will be voted on by the general assembly. "The agreement includes tax increases, slashing of wages and pensions and the lay-off of approximately more 100,000 civil servants in the next few years." Already the blog Occupied London has called for a blockade of the Athens parliament: "Last night (June 11th) the popular assembly of Syntagma square announced a call to blockade the Greek parliament ahead of the voting of the so-called Mid-term agreement between the Greek government and the troika (IMF/ECB/EU). The call-out for the blockade below is one of the most important acts we have seen by the Syntagma assembly so far. June 15th is gearing up to become a historical day in Greece, a crucial chance to block off the charge-ahead of neoliberalism here. Don't be a spectator to this - translate and disseminate the text below; organise a gathering where you are, or come join us at Syntagma. This is the struggle for and of our lives." Needless to say, should the vote pass, and should the Parliament be blockaded, which it will be, the chances of politicians to leave general assembly unscathed may be compromised. Which is why we were not surprised to learn, courtesy of Covering Delta, that the Greek parliament has hired foreign workers to clean out the underground tunnel which leads from the parliament to the port of Piraeus (soon to be privatized) in order to avoid what some fear may be the popular lynchings of MPs by the disgruntled masses.

The MPs better hope that nothing untoward happens to that tunnel before the vote. Or, perhaps that tunnel was fine and the foreign workers are there to dig a new path? Are there still union dock workers at Piraeus? If so, it might not be the best destination for the MPs after such a vote.


As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 13th, 2011 at 11:27:47 PM EST
This is all a sick joke.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 14th, 2011 at 01:46:40 AM EST
[ Parent ]
And this is Tyler Durden's punchline:
The vote is expected to come in the late morning on Wednesday EDT, so there will be enough time to observe the market's reaction should violence return to Athens.


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 14th, 2011 at 02:05:41 AM EST
[ Parent ]
If there is even a vote on the 15th I would rather expect it to come later in the evening, at least after the close of markets in NYC. The tunnel is bizarre enough to be true and would most likely be discussed on blogs. And while the MPs would certainly be advised to have some kind of plan if they plan to vote for more austerity, especially on June 15 and with the square filled with thousands of people, I would expect it would more likely involve a police attack, perhaps supplemented by elements of the military. And, yes, zero hedge is over close to the austerian/libertarian position, which has not kept them from reporting on many aspects of the GFC that have seemed bizarre but turned out to be true. The crowd could be to the tunnel as the frying pan is to the fire. I would not want to go into it under such circumstances, especially given my knees.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 14th, 2011 at 10:28:33 AM EST
[ Parent ]
A Distant Sound of Churning - Clusterfuck Nation
From the news this weekend, you'd think the world was in a coma, but I swear I heard ominous bassoon phrases through the night rain... something large groaning out there in the dark. A great churn, coming closer. The world is in a box, tortured with its obsolete ideas about how economies are supposed to run, especially the money part, and the economists are clueless.     A case in point: the eminent Vincent Reinhart at the Council of Foreign Relations last week. (Conspiracy theorists just shut your pie-holes):
 "There are very few debt defaults... there are a whole lot of restructurings. For most of history, default is something the strong declare on the weak when they lose their patience. And if you're members of the same club, you're less likely to lose your patience. Hence you're less likely to default. Greece is in the club."

     The club he refers to - the Euro money club - is less a jolly fraternal lodge than a funeral insurance association. The latest restructuring for Greece he referred to is a cockamamie perpetual rollover with no redemptions allowed, while Greece has to agree to become more like its neighbor, Albania, in lifestyle - that is, like Borat, minus the joie de vivre.     There's a third option that Reinhart ignores: the Greek populace can riot in the streets, toss out their government, install some kind of rump leadership and hoist its middle fingers at the Euro management team, opting out of the club. Why this does not occur to Reinhart (and many other vested poobahs) I can't say, despite the fact that there are many places around the world (especially Europe these days) where the natives are obviously getting restless. Besides, it's not lost on the Greek people that they're being asked to go Albanian for the sake of a dozen banks up in Germany, France, and Holland, not their own country's sacred honor.

;)

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Fri Jun 17th, 2011 at 10:16:53 AM EST
[ Parent ]
Note: the original Greek source is far from trustworthy. And especially the particular TV show this originated in.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Jun 14th, 2011 at 04:46:41 AM EST
[ Parent ]
I tried to find the source of the Zero Hedge story and if you google "Greek parliament tunnel" all you get is blogs and forums of varying degrees of nuttiness.

Zero Hedge sources it from Covering Delta,

is the blog for [the] radio show "Covering the Spread," that airs on Tuesday nights, between 7pm-8pm on 91.5FM WNYE New York. [They] cover the latest in Finance, Politics and the in-between.
The blogger is a libertarian/Austrian. Sunday, they posted The Mood in Constitution Square and the Lead-up to June 15th
The people currently gathered in Constitution Square have no more in common with each other than any other two random Greeks that you would find on the street. Some are unemployed. Some are pensioners. Some are students. Some are angry, others are despondent, and many are just there to pick up chicks.

Still, they do all seem to share one belief, and this is that the latest memorandum is bad for the country. Some falsely believe that putting an end to the memorandum and to the new IMF intervention will mean an end to austerity. Others believe that a return to the Drachma is a solution. Still others believe that solution can be found in the tenants of communism - yes, unfortunately communism is still alive and well in Athens.

However, the majority of those who I have spoken to agree that Greeks are to blame for their problems, and that a dismantling of the "rousfeti" economy seeped in bureaucracy and socialist dogma is necessary in order to improve the competitiveness of the country. This is encouraging, and equally encouraging is the recognition by this same majority that just because we are responsible for the situation that we now find ourselves in does not mean that we have the obligation, the responsibility and even the right to sell our country to a group of predator banks and multination corporations that worked alongside a generation of corrupt politicians to create a debt so large that it could never be repaid. Many Greeks are not responsible for even a penny of this debt, but even if they were, no Greek alive today has a right to sell that which is not his. Who told these parliamentarians and foreign dignitaries that they have the right to sign away this land to private corporations? What would our forefathers, who fought and bled for our right to even have a country of our own and a functioning parliament, say in response to this treason?



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 14th, 2011 at 04:56:16 AM EST
[ Parent ]
And Covering Delta sourced it from a TV news show on "Kontra Channel", a rather questionable source to say the least...

The quote: "the "rousfeti" economy seeped in bureaucracy and socialist dogma" is balderdash: Rousfeti is a word (and a practice) dating from Ottoman times, and it has been a socially legitimizing pillar of the post-civil war clientilist state, a way in which the Right bought some social consensus despite its authoritarianism. It means a favor done by a politician to one of his or her voter...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Tue Jun 14th, 2011 at 12:50:51 PM EST
[ Parent ]
Can somebody explain to me the meaning of not taxing real estate worth under 400,000 Euros? Does that mean that the vast majority of people do not pay property tax?
by asdf on Tue Jun 14th, 2011 at 12:49:32 AM EST
There are a lot of different taxes on real estate. The limit of 400,000 euros (which is about to be lowered) applies to one of them, the "tax on large real estate". This tax starts from 1/1000 and goes up to 1/100 of the estimated value of the real estate (estimated value used to be much lower than commercial value during the bubble years but now they are much closer). If you property is valued at one million euros you pay 3.900 euros per year.  It's on top of any other taxes on real estate one already pays. So the meaning of the tax exemption is that if you live on your own home which is valued at 400.000 euros, you won't pay an additional tax. Because most Greek are home-owners of some kind but rather low to middle income earners, a "large real estate tax" on the scale of 400-1000 euros per year ON TOP of other income and property taxes is significant (if you earn, let's say 1,500 euros per

You pay taxes on income earned by real estate (such as rent) where the above limit does not apply. This income is added to your total income (after deducting 10% for amortization) and has an additional charge of 3%. For example, if you gain a rent of 10,000 euros per year, 9,000 of them are added to your total taxable income and are taxed with your marginal rate (which might be from 0% up to 40%). Then you pay another 270 euros (3%) irrespectively of your marginal tax rate. So for a rent of 10,000 euros you might pay a tax of 3,870 euros (9,000X40% plus 3%).

You also pay two kinds of local government taxes. That depends on the municipality you leave but you should expect around 300-400 euros per year for a flat that can accommodate a middle-class pair and one or two children. Usually the one who lives in the flat pays this tax (be it home-owner or renter).

Then you pay a transactions tax when you buy real estate, which is quite a lot at 13% of the estimated value of the property.

The problem with real estate in Greece is not that it is not taxed, because there are quite a lot of taxes. It is that it is used to launder money by tax evaders. A provision of the freshly announced measured re-inforce that because for the next two years you won't asked where you did find the money to buy new housing property.

To conclude, you pay 13% of the estimated value of your property when you buy it, then you pay 1/1000-1/100 on its value per year afterwards, and of course you pay income taxes on rent earned (up to 40% but for middle incomes it is between 26% and 36%) plus local government taxes.

I hope that explains why real estate worth (estimated worth for tax purposes, to be precise, which might differ from commercial value) under 400,000 euros was not exempt from "large real estate tax".

"Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Tue Jun 14th, 2011 at 04:32:36 AM EST
[ Parent ]
Is it the case, as I understand it was (and maybe still is) in Spain that there is an 'official' price at which property sales take place, and then an unofficial 'premium' paid in cash ie large bundles of 'Bin Laden' (...everyone knows they are there and what they look like but they have never seen them) €500 notes.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Tue Jun 14th, 2011 at 07:50:08 AM EST
[ Parent ]
Something like that. Although you generally do not need these 500 notes because of bank secrecy.

"Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Tue Jun 14th, 2011 at 08:25:43 AM EST
[ Parent ]
Thank you for your excellent explanation!

For comparison, the annual property tax on real estate in Colorado for a private house valued at about $230,000 is around $1200. This is on the low end of the tax scale in the U.S. There is no transaction tax involved in purchasing a house (other than some small fees), but if it increases in value during your ownership of it then you have to account for capital gains tax after selling.

Real estate scams here involve getting your property listed as agricultural or unimproved land, which have very low tax rates. This generally involves a shady deal with the local tax office, and is quite common.

by asdf on Tue Jun 14th, 2011 at 05:20:24 PM EST
[ Parent ]
A couple caveats to that. I'm in NY and I bought a huge mansion in my upstate city. It cost me $250k for 8,000 square feet, turn of the 20th century woodwork, arts and crafts movement. My property taxes are $9k a year. And now you know why housing stock here is relatively cheap.

Our transaction taxes in NY are relatively high. it takes about $8k to close, but most of those are fees for title searches, surveys, appraisals and the like. Only $2k of that goes to the state as tax.

Lastly, I believe federal law has changed now and homes that sell for under half a million are no longer subject to capital gains.

by Upstate NY on Wed Jun 15th, 2011 at 12:35:49 AM EST
[ Parent ]
I had a house like that--not 8000 square feet, but same general concept. After fighting with plumbing, electricity, HVAC, roof, landscaping for a few years it got old and I moved to a brand new house. Where I can get the rarely needed plumbing part at Home Depot instead of from the guy who custom makes them on his basement lathe for $250 a pop.
by asdf on Sun Jun 19th, 2011 at 12:15:18 PM EST
[ Parent ]
Tell me about it!! Upkeep is insane. But, we do replace copper pipe with PVC. The problem is the asbestos.
by Upstate NY on Sun Jun 19th, 2011 at 12:30:06 PM EST
[ Parent ]
Some developments: The Indignants in Syntagma are to meet with the strikers that will march to Syntagma tomorrow. Together they will surround the Parliament and hope to block MPs from entering the building, as the discussion on the draconian medium-term programme. This has the police trying to figure out ways to allow entry to the Parliament...

In the mean time the government has suffered a double blow: One MP (a historical member of the old guard) has declared his independence and stated that he will vote against the programme. Another PASOK MP although still in the party, stated that he can't agree to the total privatization of the Electric Company (DEI), something expected since he is an MP from Kozani, DEI's national center and major power house.

Thus PASOK has at the moment 154 willing MPs (they need 151), and the strain against the remaining MPS is immense: all over Greece citizens file complaints and threaten their MPs in many tones. The fact that ~2 million Greeks have hit the street in disapproval (and are expected to reach new heights tomorrow and the day the programme will be voted in Parliament) also weighs heavily. At this point it's an open question whether the ECB programme will be approved by parliament, and summer elections (a rarity, historically) seem not improbable

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Tue Jun 14th, 2011 at 02:29:58 PM EST
Meanwhile, the TINA forces are beating their drums louder, too (see Bundesbank boss op-ed mentioned upthread), just to keep the pressure on the parliamentarians balanced...

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jun 14th, 2011 at 03:24:30 PM EST
[ Parent ]
But really, what could they do? Do they have everything under control as they say? Would they cut off the "aid"? what would happen if Greece goes to elections with the prospect of an ECB defeat, especially if the left (which using considerable laxity in its definition, was estimated this Sunday at 26%, with 40% non-voting) was seen to be potentially more than an annoying detail? Would they risk blowing up the eurozone edifice? Are they really ready to handle the domino effect? And could an out of control Eurozone member (with all that might imply for EU safety) be tolerated?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Jun 14th, 2011 at 04:45:02 PM EST
[ Parent ]
Would they cut off the "aid"?

That's exactly what the Bundesbank boss was suggesting (albeit in veiled form). But, I think the question is not whether the threats are credible, but whether Greek parliamentarians are capable of thinking the "unthinkable".

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Jun 15th, 2011 at 03:02:52 AM EST
[ Parent ]
Greece goes to elections with the prospect of an ECB defeat

To paraphrase askod's sig line:

A vote for PES is a vote for the ECB! A vote for EPP is a vote for the ECB! Support the ECB, vote EPP-PES in 2011!

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 03:53:46 AM EST
[ Parent ]
Together they will surround the Parliament and hope to block MPs from entering the building, as the discussion on the draconian medium-term programme.

Now the role of the tunnel becomes clear! :-) (Sorry, couldn't resist. And even a bit of comic relief seems very needed here. The tension must be unbearable. It almost is for me, hoping for a default, not just for the Greek people but for all of us.)

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 14th, 2011 at 09:00:12 PM EST
[ Parent ]
Go Greece! Save us all!
by cagatacos on Wed Jun 15th, 2011 at 02:28:16 AM EST
[ Parent ]
I heard two more MPs rebelled, that leaves 152, one more than majority, if I got this right. I also heard the government considers getting the support of independent MPs who broke off the conservatives. What's the situation now?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 01:44:55 AM EST
[ Parent ]
ElPais.com in English: Police in Barcelona move to stop "peaceful" budget protest
Security forces attempt to clear area around regional assembly ahead of Wednesday's vote

The permanent camps across Spain set up by the May 15 Movement may have been largely dismantled, but the campaign has taken on a more fluid motion in Barcelona, where on Tuesday evening hundreds of people tried to converge on the Catalan regional assembly with the aim of derailing Wednesday's scheduled debate on the Generalitat's budget.

...

The leader of the Popular Party in Barcelona, Alberto Fernández Díaz, said it was time to dislodge the "remaining anti-system protestors from Plaça Catalunya and reclaim the square for the city."



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 03:57:54 AM EST
ElPais.com: Un helicóptero traslada a Mas y a De Gispert al Parlament
La policía acordona el parque de la Ciutadella de Barcelona, donde se halla la Cámara catalana

Indignados rocían con spray rojo al exnúmero dos de Interior

...

Los primeros diputados del Parlament de Cataluña han comenzado a entrar en el recinto entre abucheos por parte de los indignados concentrados a las puertas del recinto y un fuerte cordón policial. Entre los parlamentarios que ya están dentro se encuentra el ex ministro Celestino Corbacho y el portavoz del PP, Enric Millo, entre otros. Además un grupo de indignados han pintado con spray rojo al ecosocialista Joan Boada, exsecretario general del Departamento de Interior en la anterior legislatura. Otros políticos también han sido increpados, y al secretario general de ICV, Joan Herrera, que iba acompañado de Jordi Miralles, le han tirado una piel de plátano. Han pintado una cruz negra en la gabardina de la exconsejera de Justicia Montserrat Tura, quien ha dicho que si el Movimiento quiere ganar prestigio "no se puede basar el en espray y marcar a las personas como si fueran dianas". Ernest Maragall, exconsejero de Educación, ha recibido un empujón.

A helicopter brings [Catalan President [Artur] Mas and [Catalan Parliament Speaker Núria] De Gispert to the [Catalan] Parliament
Police cordons off the Ciutadella park in Barcelona, where the Catalan chamber is

Indignants spray with red paint the deputy Interior Counsellor

...

The first members of the Parliament of Catalonia have begun to enter the premises among boos from the indignant concentrated at the gates and a strong police cordon. Among the parlamentarians already inside are the former minister Celestino Corbacho and the PP spokesman PP, Enric Millo, among others. In addition a group of indignants have spray-painted in red the ecosocialist Joan Boada, former secretary general of the Interior Department in the previous term. Other politicians have also been heckled, and the secretary general of [Green Left] ICV Joan Herrera, who was accompanied by Jordi Miralles, had a banana peel thrown at him. A black cross was painted on the trenchcoat of the former Justice Counsillor Montserrat Tura, who said that if the movement wants to gain prestige "it cannot be based on spray paint and marking people like targets". Ernest Maragall, former Education Counsellor, was pushed.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 04:08:45 AM EST
[ Parent ]
and @Acampadabcn are the relevant twitter tags.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 04:11:03 AM EST
[ Parent ]
ElPais.com: Artur Mas acusa a los indignados de "haber traspasado las líneas rojas"
El presidente alerta de un posible uso "legítimo" de la violencia por la policía esta tarde

Mas y otros consejeros llegan en helicóptero al Parlament para evitar a los indignados

Centenares de personas rodean el parque y zarandean y pintan a los diputados

[Catalan President] Artur Mas accuses the indignant of "having crossed the red lines"
The president warns of a possible "legitimate" use of force by the police this afternoon

Mas and other Counsellors arrive at the Parliament by helicopter to avoid the indignant

Hundreds of people surround the park and manhandle and paint the members of parliament



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 09:38:24 AM EST
[ Parent ]
Who are the violent demonstrators?



Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 03:13:56 PM EST
[ Parent ]
Interesting pic:


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 03:34:38 PM EST
[ Parent ]
This is eerily similar to what happened today in Athens: "Violent youth" that when pressed showed their police IDs and ran towards the Riot Sqad...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Jun 15th, 2011 at 06:13:21 PM EST
[ Parent ]
Do you have links to sources in english? (Blogs, videos...?)

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 01:59:52 AM EST
[ Parent ]

Greek Leader Proposes New Government

ATHENS--Prime Minister George Papandreou has proposed forming a national unity government with Greece's opposition political parties in an effort to build a consensus for austerity measures and other economic reforms, a senior Socialist party official said Wednesday.

In a series of telephone conversations with the heads of Greece's four opposition parties earlier in the day, Mr. Papandreou said he was willing to consider stepping down if that would open the door to a much-sought consensus.

"The prime minister has proposed to the other party leaders a national unity government," the official said. "And if there is agreement he is considering stepping down as prime minister."

The official said a prerequisite is that parliament approves a new set of austerity measures at the end of June, which are seen as a precondition for Greece to receive the next disbursement of its €110 billion bailout.

Greece is also seeking at least €60 billion in fresh aid from the European Union and International Monetary Fund. Further austerity measures are also seen as a requirement for any new aid.

The negotiations came as Greek police fought running street battles with dozens of self-styled anarchist youths in the center of Athens Wednesday, as a mass protest over new government austerity measures descended into violence.

In separate incidents near the city's main Syntagma square, the hooded anarchists hurled rocks, chairs, bottles and firebombs at police, who responded by firing dozens of rounds of tear gas and stun grenades.

Oooh anarchists. Of course.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Wed Jun 15th, 2011 at 11:39:27 AM EST
The official said a prerequisite is that parliament approves a new set of austerity measures at the end of June, which are seen as a precondition for Greece to receive the next disbursement of its €110 billion bailout.

Nice gambit.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 12:06:19 PM EST
[ Parent ]
A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the ECB, vote EPP-PES in 2011!

self-styled anarchist youths

I have now seen this oxymoron too many times to not ask: what is a non-self-styled anarchist?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Jun 15th, 2011 at 12:09:03 PM EST
[ Parent ]
A press-styled anarchist youth or so-called anarchist youth.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 12:33:11 PM EST
[ Parent ]
Do you mean oxymoron or pleonasm?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 12:34:02 PM EST
[ Parent ]
It's a redundant tautological pleonasm. At least on a Wednesday...

You can't be me, I'm taken
by Sven Triloqvist on Wed Jun 15th, 2011 at 01:01:37 PM EST
[ Parent ]
Ah OK, self-styled anarchist is a pleonasm and non-self-styled anarchist would be the oxymoron.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Jun 15th, 2011 at 02:25:04 PM EST
[ Parent ]
And an Anarchist Party would be the Oxymoron? What about "I style myself an anarchist." and "I call you an anarchist also." And what about the Anarcho-Syndicalists.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 15th, 2011 at 03:05:12 PM EST
[ Parent ]
As I wrote upthread, currently the Serious People are fighting over the German government's insistence to involve private capital in the rescue, in the form of voluntary early rollovers. Opposed: everyone, but above all France (the country with the highest liabilities in Greece), the ECB (the bank with most Greek treasuries, around €50 billion) and Germany's own Bundesbank. The opponents argue that rating agencies will interpret the early rollover as a default, causing actual default, and spreading elsewhere. And rating agencies are glad to reinforce that argument:

Moody's puts French banks on review for downgrade over Greece | Reuters

(Reuters) - Moody's Investors Service on Wednesday placed France's top three banks, BNP Paribas, Societe Generale and Credit Agricole (CASA), on review for a possible downgrade, citing the banks exposure to Greece's debt crisis.

"Today's actions reflect Moody's concerns about these banks' exposures to the Greek economy, either through direct holdings of government bonds or credit extended to the Greek private sector directly or through subsidiaries operating in Greece, a key factor for CASA and SocGen due to their local Greek banks," Moody's said in a note.

(I read in one of the links upthread that most of the French exposure is in the form of credit extended to own subsidiaries in the Greek private sector.)

This whole battle is bizarre. If only the Greek people would manage to get their parliamentarians to put an end to it.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Jun 15th, 2011 at 03:19:54 PM EST
The opponents argue that rating agencies will interpret the early rollover as a default, causing actual default, and spreading elsewhere.

What, they mean that Greece having been shut out of the capital markets for over a year and recently downrated to the worst credit rating on the planet isn't bad enough already?

In that context, what is it that the "rescue" is going to accomplish for Greece? They acknowledge it won't return to the markets until 2013, and it will remain with  a high debt to GDP ratio so its rating will continue to be low even after that.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 03:22:46 PM EST
[ Parent ]
what is it that the "rescue" is going to accomplish for Greece?

It looks like concrete boots for the Greeks -- to keep the bodies from popping up after they have been thrown overboard. The Greeks should just write all the debt down to 30-50% and inform the creditors that they will write it down to zero if they try any more economic blackmail or try to kick Greece out of the EU.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 15th, 2011 at 04:57:58 PM EST
[ Parent ]
downrated to the worst credit rating on the planet isn't bad enough already?

I didn't realise until reading it yesterday, that for some agencies, there is a rating below C: D.

Bond credit rating - Wikipedia, the free encyclopedia

Moody'sStandards & PoorFitchCredit worthiness
- C C The obligor is CURRENTLY HIGHLY-VULNERABLE to nonpayment. May be used where a bankruptcy petition has been filed.
C D D An obligor has failed to pay one or more of its financial obligations (rated or unrated) when it became due.


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Jun 15th, 2011 at 06:10:10 PM EST
[ Parent ]
Well, 'D' is "in default". It's not actually a rating of future creditworthiness.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 02:01:00 AM EST
[ Parent ]
the German government's insistence to involve private capital in the rescue

What made Merkel change her mind?

Or is this just Schaeuble asking for private involvement in the Ecofin while Merkel will argue for the contrary position at the Council?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 03:59:13 PM EST
[ Parent ]
Reportedly, Merkel is to side with Schäuble in her meeting with Sarko on Friday. Why do you think she changed her mind? I haven't seen any news about her voicing an opinion on this, so there was the Bundesbank boss only – which could have been interpreted as either channelling Merkel's disagreement with Schäuble or, quite the opposite, trying to overcome the fact of being a political nominee and establish credibility with the in-house hawks by demonstrating independence from the government. But with this latest I now think Merkel didn't made up her mind and then chose whatever furthers her stay in power.

Meanwhile, the chairman of the SPD (PES!) called Schäuble's plans a placebo and dared something bolder in calling for defaults and Eurobonds.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Jun 15th, 2011 at 06:03:33 PM EST
[ Parent ]
The Greek protesters could be having some effect. They are to give money to Greece and see the Greek populace reject it?

Just as the accusations that Greeks are layabouts, etc., coming from Merkel had their impact.

How much more punishment would the average Greek citizen have withstood if Bini Smaghi, Weidmann, Merkel and Stark resisted the urge to act smugly superior? Without a doubt, MORE!

The whole edifice is built on mutual mistrust. It will therefore crumble.

by Upstate NY on Wed Jun 15th, 2011 at 07:30:23 PM EST
[ Parent ]
Let's not forget Bundesbank chief Jens Weidmann was Merkel's economic advisor until she chose him to succeed Axel Weber earlier this year. So, we can either assume they were on the same page on no bondholder bailouts until 2013 or, more cynically, as you say, that Merkel has no position of her own and just does what is personally politically expedient hoping nobody calls her out on her change of opinion.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 01:54:46 AM EST
[ Parent ]
You have to educate me on this: does bondholder bailout and early rollover intersect?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 05:08:44 AM EST
[ Parent ]
"Voluntary early rollover" means I hold a Greek bond and the Greek government sells me a new bond, the proceeds of which they use to buy the old bond.

Whether or not this involves a loss for me or is done "at par", I fail to comprehend how this could constitute a "credit event" in the eyes of anyone.

Now, if people perceive the I bought the new bond under duress, maybe they'll call it a default, but they don't have a legal leg to stand on.

This can also be done as a bond swap. I swap my existing bond for a newly issue bond, and I agree with Greece that the bond is worth the same as the old one. Mark-to-market and hold-to-maturity accounting issues galore, as you can imagine. Credit rating agencies have said they would interpret most bond swaps as a credit event. But if you structured it as two bond purchases as above, it wouldn't be.

A "maturity extension" can be seen as a bond swap. I exchange a bond maturing in 5 years for a bond maturing in 10 years. For the same book value, the 10-year bond would have smaller periodic payments, improving Greece's ability to pay. Longer maturities have higher sensitivities to interest rates higher downside risk, and might lose market value quickly. If the maturity extension is at a loss, it would be a credit event if "involuntary", yatta yatta bing bing.

These are all examples of "debt restructurings".

A "default" is a failure to meet obligations as they mature. Evidently, if restructurings are "voluntary" there's no "default".

This has nothing to do with mathematical finance and everything to do with law and politics, evidently, though faulty accounting principles help obfuscate the issues. As does jargon.

"Bondholder bail-in" means forcing bondholders to realise losses on their bond portfolios. A "bond rollover" or "bond swap" or "maturity extension" or "debt restructuring" is a "bail-in" if it involves a loss for the bondholder.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 05:20:21 AM EST
[ Parent ]
Crucially, creditor countries in the Eurozone have insisted that the EFSF is not allowed to loan money to Euro member states for the purposes or repurchasing bonds in the open market.

For instance, Greece could repurchase its own bonds at yields of 20-something percent when they issued them at yields below 5%, realising major gains.

This the Aust(e)rians interpret as an EFSF subsidy, fiscal transfer and market manipulation, so they disallow it.

They also want to prevent the EFSF from buying sovereign bonds in the secondary market (since they failed to close that loophole in the Lisbon Treaty charter of the ECB).

The wrangling over the interest rate being charged by the EFSF to Greece, Ireland and Portugal is related to this.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 06:13:20 AM EST
[ Parent ]
On second thought, I may have been confused: I was interpreting "bondholder bailout" as bailing out private holders of Greek bonds in case of a Greek default, while you probably meant bondholders participating in Greece's bailout... financial terms are difficult.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 05:23:49 AM EST
[ Parent ]
"Bailout" and "bailin" are not financial terms, they're colourful metaphors.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 05:26:55 AM EST
[ Parent ]
Bundesbank chief Jens Weidmann was Merkel's economic advisor until she chose him

(For clarity, I note that this is what I meant by "the fact of being a political nominee".)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 16th, 2011 at 05:18:53 AM EST
[ Parent ]
Back to no bondholder bailouts until 2013: can you find the original news report behind this? I could only track down this (a press conference with Juncker in March):

Auf gar keinen Fall können wir jetzt innerhalb der Laufzeit des EFSF ‑ das will ich noch einmal ganz deutlich sagen, weil das oft missverstanden wird ‑ eine verpflichtende Beteiligung privater Gläubiger einführen, die es bis 2013 nicht gibt.Within the term of the EFSF, no way can we now - I want say this very clearly once more, because it is often misunderstood - introduce a mandatory participation of private creditors, which there won't be until 2013.

My emphasis. Schäuble's proposal is supposed to be voluntary, while the opponents argue that rating agencies won't see it as voluntary...

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 16th, 2011 at 06:07:58 AM EST
[ Parent ]
Oh. So that's where 2013 comes from:

EFSF FRAMEWORK AGREEMENT (pdf):

11. TERM AND LIQUIDATION OF EFSF

...

(2) The euro-area Member States undertake that they shall liquidate EFSF in accordance with its Articles of Association on the earliest date after 30 June 2013 on which there are no longer Loans outstanding to a euro-area Member State and all Funding Instruments issued by EFSF and any reimbursement amounts due to Guarantors have been repaid in full.



*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 06:17:26 AM EST
[ Parent ]
I would look for accounts of the 18 October 2010 Deauville summit between Merkel and Sarkozy.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 06:19:52 AM EST
[ Parent ]
Hm? I found the Schäuble position in Merkel's reply to a question at the 19 October 2010 press conference after the Deauville meeting:

REGIERUNGonline - Pressekonferenz Merkel, Sarkozy und Medwedew in Deauville AP - Press Conference Merkel, Sarkozy and Medvedev in Deauville
Ich habe immer wieder gesagt, dass die Fonds, die wir jetzt für die Rettung des Euro aufgelegt haben - sowohl bezüglich Griechenlands als auch für den Gesamt-Eurorettungsschirm -, die 2013 auslaufen, auf gar keinen Fall einfach so verlängert werden können. Deshalb heißt es heute, bereits Vorsorge zu treffen und zu überlegen: Was tun wir dann? Wir sind uns einig, dass wir einen Rettungsmechanismus brauchen, der aber dauerhaft und qualitativ anders beschaffen ist. Ich glaube, es ist ein sehr gutes Signal, dass Deutschland und Frankreich gemeinsam gesagt haben: Wir brauchen dazu eine Vertragsänderung, und diese Vertragsänderung beinhaltet einen Mechanismus, bei dem auch die Gläubiger finanziell an der Beseitigung einer schwierigen Situation für den Euro beteiligt werden. Das ist ein großer Fortschritt.I said agai and again that the funds we created to save the euro - both for Greece as well as for the aggregate euro rescue package - which expire in 2013, can in no case be just extended. That is why already today, one has to prepare and think about what we will be doing then. We agree that we need a rescue mechanism that is designed to be durable and qualitatively different. I think it's a very good signal that Germany and France have said jointly: for that, we need a treaty amendment, and this treaty amendment includes a mechanism in which the creditors, too, will participate financially in the solution of a difficult situation for the euro. This is a big step forward.

I failed to find the actual Deauville Declaration on the government site, but here is a copy of the German version, and here is the French Presidential office's English translation. The relevant part:

The amendment of the Treaties will be restricted to the following issues:

* The establishment of a permanent and robust framework to ensure orderly crisis management in the future, providing the necessary arrangements for an adequate participation of private creditors and allowing Member States to take appropriate coordinated measures to safeguard financial stability of the Euro area as a whole.

On the German government site, there is a copy of an op-ed for Handelsblatt by an advisor of the financial ministry (Schäuble), which comments the issue thusly:

Entscheidend für die Eindämmung der Staatsverschuldung ist die Beteiligung der Gläubiger an den Kosten der Sanierung überschuldeter Länder, also ein funktionierendes Verfahren für staatliche Insolvenzen. Dabei bezieht sich die Insolvenz lediglich auf die Bedienung der Staatsschulden, nicht auf sonstige staatliche Aktivitäten, und sie beinhaltet auch nicht den Ausverkauf staatlichen Vermögens. Es geht also um etwas anderes als eine private Insolvenz.Crucial to curbing the national debt is the participation of creditors in the costs of rehabilitating over-indebted countries, that is a working process for state insolvencies. The insolvency relates only to the servicing of public debt, not to other government activities, and does not include the selling off of state assets. That is, this is about something different from a private bankruptcy.
Wenn so ein Verfahren erreicht wird, sind Sanktionen der EU gegen Schuldensünder notfalls entbehrlich. Länder, bei denen eine Überschuldung droht, werden früher als bisher hohe Zinsaufschläge zahlen müssen und den Zugang zu weiteren Krediten verlieren. Genau in diesem Punkt geht die Erklärung von Merkel und Sarkozy weit über das hinaus, was die Van-Rompuy-Task-Force vorgeschlagen hat. Während die Task-Force eine Gläubigerbeteiligung nicht einmal erwähnt, ist nun vorgesehen, ein solches Verfahren im Rahmen einer Vertragsänderung einzuführen...If such a process is reached, the EU sanctions against debt sinners are expendable if necessary. Countries threatened with over-indeptedness will be required to pay high interest rate surcharges earlier than previously and lose access to further loans. Exactly at this point is the statement of Merkel and Sarkozy going far beyond what the Van Rompuy Task Force has proposed. While the Task Force did not even mention creditor participation, it is now foreseen to introduce such a procedure as part of a treaty amendment...
Entscheidend ist nun die Art und Weise, in der Insolvenzverfahren und Hilfen kombiniert werden. Wichtig ist zunächst die Reihenfolge. Die Beteiligung der Gläubiger muss am Anfang stehen. Diese Beteiligung erfolgt im Wesentlichen in Form eines "Haircuts", also einer pauschalen Kürzung der Forderungen. Erst dann kann das betreffende Land Hilfen erhalten. Keinesfalls dürfen die Hilfen vorher gewährt werden. Denn sonst besteht die Gefahr, dass es nie zur Beteiligung der privaten Gläubiger kommt und die Steuerzahler letztlich doch die Kosten der Sanierung tragen.Now the decisive issue is the way and method of the combination of the bankruptcy process and bailouts. Of foremost importance is the order. The participation of the creditor must appear at the beginning. This participation takes place mainly in the form of a "haircut", i.e. a sweeping reduction of claims. Only then can the country receive assistance. Under no circumstances may the aids be granted beforehand. Otherwise the danger exists that it will never come to the involvement of the private creditors and in the end the tax payers will pay the price of the rehabilitation.

This was not merely about early rollover but participation in a default, and an apparently mandatory one. So I would conclude that Merkel's March 2011 comments were probably motivated by the financial sphere's negative reaction to the Deauville proposal, saying "don't be scared, me and Sarko only proposed this for after 2013".

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 16th, 2011 at 07:14:36 AM EST
[ Parent ]
The insolvency relates only to the servicing of public debt, not to other government activities, and does not include the selling off of state assets.

...oh was that long ago...

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 16th, 2011 at 07:16:32 AM EST
[ Parent ]
So I would conclude that Merkel's March 2011 comments were probably motivated by the financial sphere's negative reaction to the Deauville proposal, saying "don't be scared, me and Sarko only proposed this for after 2013".

March? Merkel's position since October has been no losses for private bondholders before 2013

Germany's Angela Merkel, by contrast, pushed ahead with her plan to set in concrete the principle that government bondholders should be prepared post-2013 to suffer losses if a government can't pay its bills. She got her way and EU governments this month backed the principle as part of a future financial-rescue regime. Do note, however, that even conservative Angela Merkel kicked the can down the road a couple of years like any run of the mill politician is likely to do.

Even so, Ms. Merkel's decision to be explicit about the possibility of future bondholder losses spooked the markets. There, a little more ambiguity might have been a good thing. Usually markets tend to like certainty but it is apparent that bondholders of sovereign debt dislike the certainty that in the future they will have to share in losses due to governments having a solvency problem and restructuring, really defaulting, on government bonds.

Of course, if you tell the markets you'll allow defaults after 2013, you won't be able to place any bonds in the open market with maturities after 2013...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 07:18:31 AM EST
[ Parent ]
Merkel's position since October has been no losses for private bondholders before 2013

For October, that's interpretation, for March, it's explicit. (And before Merkel and Sarko brought that proposal in, there was no one proposing it for any time including after the ESFS, either.)

Either way, there is no contradiction between the Schäuble proposal and either the Deauville Declaration or Merkel's March 2011 promise that I can see, and all of them seem motivated by appeasing the don't-spend-our-precious-tax-euros members of the own camp.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 16th, 2011 at 07:25:43 AM EST
[ Parent ]
Actually, let's be precise: Merkel's position since October has been no mandatory losses for private bondholders before 2013.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 07:29:30 AM EST
[ Parent ]
The distinction between voluntary and involuntary bailins is academic. If the bondholder arrives at an agreement with the bond issuer there's nothing Merkel or anyone else can say about it.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 08:12:43 AM EST
[ Parent ]
that I was afraid to ask :

why would a sane bond-holder accept a "voluntary" bailin?

The Nonsense of purely voluntary Bail-ins

A purely voluntary maintenance of exposure at current market rates would make the sovereign's debt even more unsustainable and, in time, will ensure a default on the new bonds. The only way to prevent the coupon/yield on the new bonds from being close to market rates and thus unsustainable would be to provide the new bonds with seniority or some collateral; but both options are undesirable as a rollover is not a case of "debtor-in-possession" financing and thus doesn't justify such credit sweeteners.

 

If, instead the rollover occurs at original coupon or well below market rates, so as to provide Greece with some debt relief, the rollover option is not purely voluntary and has coercive elements; thus, it is not different in any substantial way from the orderly debt restructuring, or reprofiling, that the ECB and other official sector folks so vehemently oppose.



It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Jun 16th, 2011 at 09:56:06 AM EST
[ Parent ]
German banks have sold off enough of their Greek bonds that they are now at a manageable level; French banks have held on to theirs (or own Greek subsidiaries which hold the bonds).

So a rollover/default is something the German banks can live with, given that they have already imposed themselves a haircut. But the French banks/government are still in denial, and are soon to hit a brick wall.

Unless there is a change in ECB policy, or something.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Jun 16th, 2011 at 04:32:37 AM EST
[ Parent ]
The French banks cut their Greek exposure massively in late 2010.

Another possibility is that the French banks understand that they will get cents on their € from Greece, but want their Spanish and Portuguese bonds to mature and be rolled over before Greece makes an unequivocal demonstration to Spain and Portugal that default is not the end of the world. But that's data-free speculation on my part.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 16th, 2011 at 04:51:47 AM EST
[ Parent ]
No, not data free: contagion is what everyone from Trichet through Weidmann to Lagarde is warning about.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 05:11:20 AM EST
[ Parent ]
The part about French banks I don't get is why bonds to own subsidiaries are to be considered as a risk equivalent to that faced by foreign banks holding sovereign bonds. Can't companies be much more flexible about rollovers and even haircuts in that case?

Regarding the ECB, what is your thinking about that €50 billion exposure? Could a default on that mean, as argued, an actual (or at least perceived) risk to the ECB itself? (Where I am not even sure whether that is supposed to be a liquidity, solvency, credibility, or some other crisis.)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 16th, 2011 at 05:16:15 AM EST
[ Parent ]
Regarding the ECB, what is your thinking about that €50 billion exposure? Could a default on that mean, as argued, an actual (or at least perceived) risk to the ECB itself? (Where I am not even sure whether that is supposed to be a liquidity, solvency, credibility, or some other crisis.)
See Can Central Banks Go Broke? (CEPR Policy Insight No. 24)
In CEPR Policy Insight No.24, Willem Buiter asks: Does it matter if a central bank suffers a large capital loss? Can the central bank become insolvent? How and by whom should the central bank be recapitalised, should its capital be deemed insufficient?
I quoted some bits about the ECB and Eurosystem in this diary.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 05:23:47 AM EST
[ Parent ]
The key point seems to be:

Insolvency for central banks therefore would mean failure to pay obligations as they fall due (equitable insolvency) rather than liabilities exceeding assets (balance sheet insolvency).

As long as central banks don't have significant foreign exchange-denominated liabilities or index-linked liabilities, it will always be possible for the central bank to ensure its solvency though monetary issuance (seigniorage).

...which the ECB won't do, leaving recapitalisation by the Treasuries of the 15 Eurozone governments, which is tricky. Did I miss something?


*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 16th, 2011 at 05:54:15 AM EST
[ Parent ]
ECB press releases: 16 December 2010 - ECB increases its capital
The European Central Bank (ECB) has decided to increase its subscribed capital by €5 billion, from €5.76 billion to €10.76 billion, with effect from 29 December 2010. This decision was taken by the Governing Council of the ECB in accordance with the Statute of the European System of Central Banks and the ECB, as well as the Council Regulation No 1009/2000 of 8 May 2000 that foresees an increase in the capital of the ECB by up to this amount.

This decision resulted from an assessment of the adequacy of statutory capital conducted in 2009. The capital increase was deemed appropriate in view of increased volatility in foreign exchange rates, interest rates and gold prices as well as credit risk. As the maximum size of the ECB's provisions and reserves is equal to the level of its paid-up capital, this decision will allow the Governing Council to augment the provision by an amount equivalent to the capital increase, starting with the allocation of part of this year's profits. From a longer-term perspective, the increase in capital - the first general one in 12 years - is also motivated by the need to provide an adequate capital base in a financial system that has grown considerably.

In order to smooth the transfer of capital to the ECB, the Governing Council decided that the euro area national central banks (NCBs) should pay their additional capital contributions of €3,489,575,000 in three equal annual instalments. Consequently, the current euro area NCBs will pay €1,163,191,667 as their first instalment on 29 December 2010. The remaining two instalments will be paid at the end of 2011 and 2012, respectively. Moreover, the minimal percentage of the subscribed capital, which the non-euro area NCBs are required to pay as a contribution to the operating costs of the ECB, will be reduced from 7.00% to 3.75%. The non-euro area NCBs consequently will make only minor adjustments to their capital shares, which will result in payments totalling €84,220 on 29 December 2010.

Then, each national treasury will have to recapitalize its own National Central Bank, with "no fiscal transfers".

So, the problem is not whether or not the ECB will become insolvent. The question is whether the ECB will allow Eurosystem member National Central Banks to become insolvent.

ECB council members have used the threat of insolvency of the Irish and Greek central banks explicitly over the past year.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 06:04:13 AM EST
[ Parent ]
then presumably that would eat up the €10B capital, and the ECB would already be insolvent, by its own lights...

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Jun 16th, 2011 at 08:27:31 AM EST
[ Parent ]
But the ECB itself only has €13bn of sovereign bonds from the Securities Market Programme, right? The rest is in the National Central Banks' books.

So the ECB itself wouldn't realise a €50bn loss from a Greek default...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 08:40:57 AM EST
[ Parent ]
The Prime Minister, after 12 hours of "discussions" and "bargains" with the Conservative party leader Antonis Samaras, and well after it was announced that we are heading for a National Unity government led by him, changed his mind and around 10 o clock, announced that this whole charade was in order for him to reshuffle cabinet posts (possibly including "technocrats" - a term that sends shivers down my spine as it usually means "indoctrinated neoliberal ideologues") on Friday.

This theater of the absurd all day today, has made me pity the poor man: he is obviously so dumbfounded and without a clue as to what is happening that he can't help making a spectacle off himself even on critical issues (and critical for the whole world, judging from the fact that BBC news has consistently kept the developments in Greece as their leading story, today)...

And there were the demos / strikers of course. Like nothing I've seen before on many counts. Syntagma has started looking more like Tahrir than Puerta del Sol... I suppose though that I should write a diary about those? Perhaps tomorrow if you are all not too fed up with Greece-related posts... Otherwise I'll add a comment here...

Meanwhile: Paul Mason's "Greek state starting to lose grip on functions of state", is probably the most insightful description of the situation in Greece that I've seen reported by any foreign correspondent (despite the awkward title!). This photo, from the steps of Syntagma square today, summarizes a lot of what Mason is saying:

It reads "Decide now: By helicopter or by hearse"

[See also murplejane's excellent collection of photos from today's events]

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Wed Jun 15th, 2011 at 06:49:04 PM EST
And two videos:
RT News crew tastes Greek police teargas (the canisters of which have expiration dates circa 1993 BTW)

Police attack and disperse dancing protesters (an amazing story in its own right, these people were dancing under concentrations of teargas similar to those that made the RT crew reporter above collapse):



The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Wed Jun 15th, 2011 at 07:18:27 PM EST
[ Parent ]
I see now that Mason has written another excellent article on Syntagma square yesterday... Again he seems to be actually paying attention to what is happening - he doesn't get some of the background cultural things naturally, but what he does get is much more than the vast majority of his colleagues (and that includes most Greek pundits as well)...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Jun 15th, 2011 at 08:13:44 PM EST
[ Parent ]
German public TV channel ARD, whose morning show I usually watch during breakfast, has a young reporter on the ground, who usually got airtime to say a line or two only. But today, also via satellite link, they interviewed a German-speaking Greek economist (sorry couldn't memorise his name) who got to say all that needs to be said: that the protest is against the austerity programme which causes recession, that the recession also results in reduced tax income and thus no solution to the solvency crisis, that the long-term solution would involve pay rises in export countries, that the short term solution would involve defaults and tax hikes for the rich.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 01:35:00 AM EST
[ Parent ]
Mason's conclusion:

It will be interesting to see how this interacts with Greek middle-class public opinion. The centre-right opposition party New Democracy is now riding high in opinion polls - though with 37% would not win an election outright, as its Portuguese counterpart did: If there's a snap election I would expect the same outcome as in Portugal, and as in Spain - where the existence of a square's occupation movement belied a national-level electoral swing to the right.

When I put it to the protesters that this might happen their attitude was: We don't care. New Democracy will come in, and they will soon go out again. They saw little difference between the parties, given effective economic sovereignty lies in Brussels.



*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 01:49:07 AM EST
[ Parent ]
From Mason's first cited post:

And I will repeat the point about hostility to the media: it's not a problem for me and my colleagues to be hounded off demos as "representatives of big capital", "Zionists", "scum and police informers" etc. But to get this reaction from almost every demographic - from balaclava kids to pensioners - should be a warning sign to the policymaking elite. The "mainstream" - whether it's the media, politicians or business people - is beginning to seem illegitimate to large numbers of people.

As one old bloke put it to me, when I said: "Don't you want us to report what's happening to you?" - "No."

He was quite calm and rational as he waved his hand in my face: "It's too late for that."



As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 16th, 2011 at 01:01:47 AM EST
[ Parent ]
From Eurointelligence: On the brink (again)
Dramatic events in Greece yesterday: As tens of thousands protested against the new austerity plans George Papandreou offered to step down in favour of a new unity government. But talks with the conservative opposition failed and George Papandreou announced instead a cabinet reshuffle and a vote of confidence in Parliament, Kathimerini reports. Papandreou had reportedly refused to accept the opposition's condition to renegotiate the aid deal.  After the talks failed, opposition leader Antonis Samaras blamed the government for the failure and asked for early elections saying on television: "It is clear that the only one who can deliver a solution now is the Greek people," Reuters reports.  Analysts say that if Papandreou wins the confidence vote today, there might be no early elections and the chances increase that there is a sufficient majority in parliament to adopt the austerity plan.

To secure the support of the majority George Papaconstantinou had offered on Wednesday to soften some of the austerity measures, including not hiking the tax on heating fuel and keeping the tax-free threshold on property at €200,000 rather than €100,000, according to Reuters.  

Papaconstantinou is likely victim in the cabinet reshuffle. BBC News quotes analysts saying the post is likely to be filled by Lucas Papademos, former vice president of the ECB.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 03:51:23 AM EST
[ Parent ]
This is how I understand this , maybe I am wrong and shallow :(
They are buying time (with EU tax payers money to bail out those that have no chance) to get their money out of those dangerous areas and movie it somewhere (for now) safe (mostly Asia).
And who cares if Greece will be bankrupt with 100 or 400 (even better) billion of debt (then not to them - bandit bankers and " investors" but to tax payers)."Privatisation" ah glorious privatisation is on the way and "no alternative"...right...Greece is already sold, it's just a matter of paper work...They can BUY Greece for peanuts with this inflation money that never existed in a first place...My head is spinning...Sad, sad story. Classic case of Pyramid scheme...The last one standing with their red hands will be European tax payers paying with their rights and services achieved in last 100 years and now being lost...


Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Wed Jun 15th, 2011 at 10:11:32 PM EST
No, that's not wrong and shallow, that's exactly how currency crises unfold. After the Asian Crisis, in 1998 Russia borrowed heavily from the IMF in order to blow the loan defending the Rouble-s exchange rate for a couple of weeks to give time to the oligarchs to get their assets out of the country.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 01:59:14 AM EST
[ Parent ]
And sad "THE END" of this story soon will be I suppose wualla(or what ever is French spelling)  NEW ELECTION where "smart" people will vote (in their anger) for conservatives...Then we'll see real meaning of AUSTERITY...Seems familiar?  

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Wed Jun 15th, 2011 at 10:22:35 PM EST
(Reuters) - A string of parliamentary resignations threw Greek Prime Minister George Papandreou's plan to reshuffle his cabinet and seek support for a crucial austerity package into disarray on Thursday.


The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 07:45:54 AM EST
So the resigned PASOK MPs will be replaced by other PASOK members... that's no melting majority then, but PASOK MPs freeing themselves from the responsibility.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 01:20:31 PM EST
[ Parent ]
Yep, up til now that's what is happening... we will see what happens in the end, the situation is still fluid. Papandreou tried to rally in his parliamentary group tonight, but it's still unclear what he aims to achieve...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 02:08:03 PM EST
[ Parent ]
KeepTalkingGreece: Greece's Political Developments, June 16 - Live Blogging

For quick updates on the avalanche of events that are evolving at a dizzying pace...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 08:14:40 AM EST
http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=4298448

IMF softens its stance on Greece, as does Germany

Thu 16 Jun 2011
IMF softens its stance on Greece, as does Germany LONDON - According to the Financial Times, the International Monetary Fund has indicated that it is willing to disburse the next tranche of Greece's current rescue package so long as the EU makes up for any shortfall.

So I've been reading that the protests in Greece and gov't talks have come as a shock to the EU heavyweights. They are now reacting in different ways to events on the ground.

This reinforces the sense that they are only in reactionary mode. They have no one on the ground apparently who can tell them how the austerity program is going. I always assumed that they would just as well accept a Greek default brought on by popular demand, and that's why the measures were so stringent (not to mention the ethnic insults). But now it seems that, no, they just don't know what the fuck they are doing.

by Upstate NY on Thu Jun 16th, 2011 at 09:06:15 AM EST
As long as the powers that be (1) don't realise that austerity causes recession causes tax income collapse causes worsening budget deficit even with savings on expenses, (2) don't recognise that it is in their power to nuke the markets, the speculators, the rating agencies; they won't be able to stop the wave from reaching them, too, and all grand schemes they could have followed amount to foolishness.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Jun 16th, 2011 at 01:28:40 PM EST
[ Parent ]
So I've been reading that the protests in Greece and gov't talks have come as a shock to the EU heavyweights

Because IMF riots only happen to ugly Americans. The EU is a Force-For-Good™

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 03:44:50 PM EST
[ Parent ]
I believe I hit on the right description of them within 6 weeks of the start of the Urkrise.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:01:46 PM EST
[ Parent ]
Who?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:09:50 PM EST
[ Parent ]
Reuters: IMF expected to pay next Greek tranche: eurozone sources
"The situation is clear: If there is a strong commitment from the Europeans to do whatever it takes to back Greece, the IMF will pay the money. And I can tell you there will be such a commitment," one senior euro zone source told Reuters.

The IMF had said disbursement of more money was contingent on a plan being finalized to guarantee Greece's funding needs into next year.

In Paris, Zhu Min, a special advisor to the IMF's managing director, said the Fund was deeply concerned by the latest political turmoil in Greece but stood ready to help if the government could win consent for its austerity plan.

(My emphasis)

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:30:56 PM EST
[ Parent ]
Keynes said
The old saying holds. Owe your banker £1000 and you are at his mercy; owe him £1 million and the position is reversed.
Addendum to Keynes: if the bank has written CDS for £1 billion of your debt you hold the entire world economy at your mercy.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:33:13 PM EST
[ Parent ]
  1. Greece defaults.

  2. Stricken banks, Greek or otherwise, launch rights issues to recapitalise themselves.

  3. Greece returns to balanced budgets by actually enforcing its tax gathering system.


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jun 16th, 2011 at 01:33:37 PM EST
Foreign primary deficit plus prevailing hard currency interest rates being in excess of sustainable nominal growth rates.

You can solve this with a transfer union, by Germany import more to reduce the foreign primary deficit or by increasing Eurozone inflation to boost nominal growth, while retaining low Euro-denominated interest rates. But you need at least one of those.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 16th, 2011 at 03:29:32 PM EST
[ Parent ]
Well, that's only a problem if you rely on deficit spending to prop up the budget. Balance the budget by enforcing the tax laws and cut certain spending. Tax evasion is very, very large in Greece If people actually payed the taxes they're supposed to pay, there would be no deficit at all.

Or do you think the taxes would then become so high that they'd strangle growth?

In the long run it seems some kind of structural reform is needed for Greece, to deal with the fact that wages have risen so fast that the

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jun 16th, 2011 at 04:17:19 PM EST
[ Parent ]
productivity improvements of the export industry (including tourism, I suppose) hasn't managed to keep up, lowering the relative strength of Greek companies.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jun 16th, 2011 at 04:19:44 PM EST
[ Parent ]
The best way to improve worker productivity in the deficit countries is to invest in productive capital. Hence the best way to resolve the Euro crisis and close the chronic imbalances is recycling of trade surpluses into EU structural funds geared towards productive investment.

As it is, EU industrial policy forces inefficient countries to shut down their physical plant, making them even less productive.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:23:27 PM EST
[ Parent ]
As for tourism, the pricing of Greek tourism is sky-high over where it was a decade ago. But tourism numbers are sky-high as well. They have more tourists than ever before.

I know because I've been taken to task by Greeks for complaining about all-inclusive resorts encroaching on the beach, for 15 euro beach umbrella rental, etc.

by Upstate NY on Thu Jun 16th, 2011 at 04:36:03 PM EST
[ Parent ]
How big do you think Greek tax evasion is?

It's at 25%.

Now, assume that if Greece were like every other European country, it only had 20% tax evasion.

Well, let's look at its tax collection. It's at 140 billion. 5% of that is 7 billion. That's not enough to cut into a 350 billion deficit. We've only accounted for 2% of a 11-15% yearly budget deficit.

Taxes should be reformed in Greece BECAUSE they are unfair to those who pay. But from a macro perspective outside Greece, here are the numbers reported by Eurostat for the last decade:

Greece collects between 40-43% of its GDP annually. The EU collects 44%.

In Greece, 8% of GDP is collected as income tax revenue. 12% social contributions. 5% corporate. 16% VAT and sales tax.

The actual rate of tax collection in Greece is on par with tax collection in Europe. In fact, I would argue that in Greece, tax collection actually exceeds that of most of Europe when you take into account two factors: Shipping and Tourism. Those two industries account for almost 40% of Greek GDP. Tourism is cash heavy, and outside of using credit cards, I'd imagine its an industry with high evasion. Shipping revenues and profits are untaxed precisely because the ships can register in any port, under any flag. The ship owners pay a tonnage tax for the weight of ships only. So here with shipping we account for 20% of the nation's GDP, but for hardly any of the country's taxes. This literally means that when you back out shipping, the GDP subject to tax is smaller, and thus the % of tax to GDP collected is much higher.

To roll back high tax evasion of high taxes would be a very good thing for Greece, but not a solution. After all, high tax evasion of high taxes already yields more revenue than the low tax evasion of low taxes. In the USA, we have hedge fund managers who pay 15% on earnings.

by Upstate NY on Thu Jun 16th, 2011 at 04:33:31 PM EST
[ Parent ]
Ah well. I calculated that tax evasion would fall from 25 % to 0 %. Or at least to 5 %, the level in Sweden. That should equal about 8-10 % of GDP and hence bring the deficit under control, if not eliminate it outright. Pie in the sky, I suppose.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jun 16th, 2011 at 05:37:35 PM EST
[ Parent ]
http://www.economist.com/node/16792848

Here's an article about it.

The thing is, you have Junker as a titular head of the EU, an ex-head of Luxembourg which has long batted back EU attempts for some transparency into its "tax paradise" arrangements with some of the worst scofflaws in Europe.

by Upstate NY on Thu Jun 16th, 2011 at 06:35:58 PM EST
[ Parent ]
I'm not sure about the numbers: this paper shows tax evasion ~15% of GDP for Greece - but that includes effectively non-taxable and not reported as GDP, black market economy revenue and thus a figure larger than the figure the Economist is quoting... I can't believe that any northern EU country has anything similar. I should repeat here (I've mentioned it in a comment before) that the M&F paper shows that personal income tax evasion is disproportionately due to the highest income decile in Greece. At the same time corporate tax rates on profits fell between 2000 and 2010 from 40% to 20% , as mentioned here - and that applies to undistributed profits, distributes profit rates' are at 40%, but the net effective rates were (in 2004 at least that I found data) among the lowest in Europe. In fact Greece overtaxes labor and undertaxes profits compared to EU averages even now.

Total revenues in Greece have been less than 40% GDP (but less than that as I mentioned here) an approximately 5% lower number than the Eurozone average that jibes with the 15 billion Euro evasion the Economist article mentions, and I suppose that Greece is on a par with other EU countries in (legal) tax avoidance?

Shipping offers around 7% GDP (here in Greek) and tourism another 15%... Tourism I wouldn't think has a much higher rate of tax avoidance than other industries. Shipping companies and tycoons are almost religiously tax-exempt, not even the income they make from shipping activities is taxed (this again is in Greek, and accurate AFAICT. It lists more than 55 special provisions in the tax code for shipping companies and their shareholders/owners. Quite shocking)

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 08:33:02 PM EST
[ Parent ]
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tec0002 1&plugin=1

This is where I was pulling the tax revenue numbers from, but it also breaks down tax collections by type (income, corporate, etc.)

Interesting about shipping, since I read a number of articles recently that put it at 18% of Greek GDP. I wonder, could this be related to the spectacular deviations in shipping costs? During much of the decade until 2008, Greek shippers were charging upwards of $110,000 a day per ship. By 2009, the rates for shipping dropped to $5,000, so low in fact that companies saved money by refusing contracts, drydocking ships, laying off workers, etc. Many of these companies showed income only from scrapping older ships for metal. I wonder where one might find a year-over-year comparison of the shipping industry.

by Upstate NY on Thu Jun 16th, 2011 at 08:42:22 PM EST
[ Parent ]
Yes, that's where I got the numbers for the charts I drew too. It's near a 4-5% difference between revenues in Greece and the Eurozone average. The shipping rates recovered in 2010 (but are near crash lows in 2011). Check the Baltic Exchange Index history here:

Some numbers on tourism and shipping (2003-2008) here. In Greek.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 08:57:03 PM EST
[ Parent ]
Looking at that chart, I promise never to overstate, understate, or ever state anything about shipping's impact on Greece's GDP.

And people wonder why Greeks are happy-go-lucky.

by Upstate NY on Thu Jun 16th, 2011 at 09:00:02 PM EST
[ Parent ]
I am quite skeptical on the numbers circulating on shipping and tourism contribution to Greek GDP. These number are numbers by their respective lobbies so they tend to be inflated (for example, by including a broad area of services to "tourism"). They both use these data to extract tax concessions from the governments.  I would be happy to ask shipping and tourism lobbies to give figures not only for their supposed contribution to GDP but also to tax revenues (har, har). Their tax concessions on one hand and subsidies they get on the other one are really outrageous.

With a quick look at the official site of Hellenic Statistics I couldn't find data on Greek GDP composition braking down to shipping or tourism. That's why figures quoted by various sources differ significantly. For example, a recent paper by National Bank of Greece quotes shipping as 6.9% of GDP.

"Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Mon Jun 20th, 2011 at 01:29:34 AM EST
[ Parent ]
Maybe you can find the data here...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 20th, 2011 at 01:56:46 AM EST
[ Parent ]
Nope, or I need to change glasses.

"Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Mon Jun 20th, 2011 at 12:08:12 PM EST
[ Parent ]
I am quite skeptical on the numbers circulating on shipping and tourism contribution to Greek GDP. These number are numbers by their respective lobbies so they tend to be inflated (for example, by including a broad area of services to "tourism").

"[W]hen you add up the growth prognosis of all companies of a sector strangely the market is often a lot bigger than it should be..."

- crankykarsten

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 20th, 2011 at 09:00:12 AM EST
[ Parent ]
Shipping is so flush and bust that this alone might explain the different numbers from different sources. Their revenues are not a mystery either since many Greek shippers are public companies. Shipping could be 7% GDP recently, but again, right now business is a bust. It's easy to imagine revenues quadrupling (if not more) in a good economy, and then it becomes a higher % of GDP.

I'd really like to know about the Greek banks and the fact they were started by shipping magnates. What's the relationship between these banks and the shippers who started them. What kind of impact does this have on Greece? It seems to me, should the world economy get going again, the shippers themselves can recapitalize banks in a similar fashion if the old ones collapse, as long as their wealth isn't too closely tied to the banks they created.

by Upstate NY on Mon Jun 20th, 2011 at 09:36:34 AM EST
[ Parent ]
Shipping revenue might increase but I don't remember seeing trustworthy figures over 12% GDP, ever. Do not forget all those patriotic Greek shipowners who have their vessels under many flags of opportunity and the number of their hqs in London...

But see this (p.6) and you realize that as far as shipping is concerned Greece is an international tax haven...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Mon Jun 20th, 2011 at 06:57:46 PM EST
[ Parent ]
So, not only do the shareholders pay no tax, but those working in the offices of these companies pay no tax either!
by Upstate NY on Mon Jun 20th, 2011 at 08:50:14 PM EST
[ Parent ]
and of course the officers can pay the employees less, because they won't be taxed on it of course.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Jun 20th, 2011 at 08:56:31 PM EST
[ Parent ]
I am fairly confident that a not insignificant percentage of higher paid members of staff are family or sons/daughters/etc of serious people / potential allies / partners. They would not be that poorly remunerated, I assume...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Jun 21st, 2011 at 10:04:45 AM EST
[ Parent ]
Indeed, some of the public companies spread out pay to family members so it doesn't look like the CEO is taking a huge salary. This is the kind of stock that Wall Street loves because there's enough suspicion behind the company officers' motives to draw a lot of short interest. Plus, the fact the company is run by Greeks also attracts short interest. Then the mo-mo guys jump on board, pump the story when revenues in oil drilling and shipping come in, and they squeeze the shorts blind.

Wall Street loves stocks with big revenues and muddy stories. Pump and dump.

by Upstate NY on Tue Jun 21st, 2011 at 10:45:04 AM EST
[ Parent ]
Well, that's only a problem if you rely on deficit spending to prop up the budget.

No, you can't solve a foreign balance problem by curtailing the sovereign budget. That just shifts the foreign debt to private hands (all too often temporarily, as we have seen recently). You have to make foreigners buy more of your stuff, or buy less foreign stuff.

That means industrial policy, which costs money. Money that the ECB should be printing on demand. But which it is not because it is run by deficit errorists.

In the long run it seems some kind of structural reform is needed for Greece, to deal with the fact that wages have risen so fast that the productivity improvements of the export industry (including tourism, I suppose) hasn't managed to keep up, lowering the relative strength of Greek companies.

Again, that's not primarily a Greek issue. It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 16th, 2011 at 05:35:53 PM EST
[ Parent ]
You have to make foreigners buy more of your stuff, or buy less foreign stuff.

Obviously. And this is quite clearly, up to Greek consumers and companies. Buy less foreign stuff, make better stuff at a lower cost.

It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies.

You know I agree partly here, but nothing stops Greece from looking beyond the eurozone for markets for its exports. It wouldn't be alone in that.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jun 16th, 2011 at 05:41:03 PM EST
[ Parent ]
And this is quite clearly, up to Greek consumers and companies. Buy less foreign stuff, make better stuff at a lower cost.

Of course, Greek private debt is pretty low comparatively. It's the government that overspent. So it's not really a matter of buying too much foreign stuff as much as it is too much foreign fuel, or foreign military weaponry, etc. The BMWs flying around Athens are reserved for the privileged.

by Upstate NY on Thu Jun 16th, 2011 at 06:40:54 PM EST
[ Parent ]
Because clearly everyone can be a net exporter.

If Germany generates inadequate domestic demand with irresponsible wage suppression, someone, somewhere is going to have either unemployment or bubbles. Passing that problem around like a grenade with the pin pulled out does not strike me as the pinnacle of responsible behaviour.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 17th, 2011 at 05:16:31 AM EST
[ Parent ]
The eurozone is a shrinking fraction of the total world economy, and if someone is going to be a net exporter, it might as well be us.

The trick seems to be not recycling the surplus into dodgy bonds. Avoiding that can't be too hard.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Jun 17th, 2011 at 03:40:57 PM EST
[ Parent ]
And why, precisely, should countries outside the Eurozone - who are actually able to defend themselves against mercantilist attacks - voluntarily decide to subsidise our irresponsible policies?

For that matter, given that German has demonstrated no inclination to permit a currency or industrial policy that would aid Greece, how precisely do you propose that they improve exports? None of the traditional neo-mercantilist policy options are available here.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 17th, 2011 at 04:27:29 PM EST
[ Parent ]
Other countries currently seem entirely happy with doing nothing about "mercantilist attacks", as it means they can import lots of nice stuff.

When it comes to improving exports, I, or any political guy, is the wrong person to ask. Especially in the short-run, as government-led structural reforms like or industrial policy like improving infrastructure or having a non-insane energy policy takes years or decades to implement. No, you're better off asking those who actually run successful export companies what Greek companies are doing wrong when they fail to export outside the eurozone.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Jun 17th, 2011 at 04:51:47 PM EST
[ Parent ]
Greece's products are too expensive because property and worker's pay inflated with cheap currency, bringing it on par with the Eurozone's. Thus, what maunfacturing plants were there eventually shuttered, and it never had the ability to compete with high value technological production. Isn't that the difference?
by Upstate NY on Fri Jun 17th, 2011 at 09:16:21 PM EST
[ Parent ]
All economics is politics. If you excuse yourself from the discussion on the grounds that you're a 'political guy' what good are you?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sat Jun 18th, 2011 at 02:36:56 AM EST
[ Parent ]
All economics might be politics, but all business certainly isn't. When you ask politicians or pundits to run manufacturing companies, things usually go down the drain. Fast.

According to a recent WEF survey, Greece has the lowest competitivness of all EU nations. Greece has slipped from place 50 to place 109 on the World Banks list of the best places to run a business, below countries like Bangladesh or Ethiopia. Big stumbling blocks are things like inefficient government bureaucracy and massive corruption. During 2004-2009, employment in the public sector increased by 100.000 people, largely as a reward for political loyalty. At the same time, public salaries rose by 60 %. How this could not result is a fiscal disaster, is hard to understand. It's just not possible to keep spending more than you tax, year after year, and especially not when you're in the good part of the business cycle!

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jun 18th, 2011 at 10:23:52 AM EST
[ Parent ]
During 2004-2009, employment in the public sector increased by 100.000 people

No. The number is supposedly +58.000 (16.000 of those were in 2008 for obvious reasons, 12.000 in 2004 - an Olympic year...). In early 2010 a detailed census of public sector employees found them to be ~768.000 - that's about 15% of the work force, not a high number by OECD or EU standards.
Public salaries rising by 60% in 4 years is a joke. Just to give you an idea: over the same period public sector wages as a percentage of GDP were pretty much steady despite the rise in public employee numbers.

So the public sector's extent was not the cause of the "fiscal disaster". Lagging revenue was. And the decile where the lagging was humongous was the top decile...

An aside:

I'm thinking of posting a diary with a title like "10 fairy tales about the Greek economy" debunking the poppycock that "serious" news sites (not to mention economists) are propagating regarding the data before the crisis... is that the sort of thing we all have in mind that ET reports are about?

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Jun 18th, 2011 at 06:21:01 PM EST
[ Parent ]
I'm thinking of posting a diary with a title like "10 fairy tales about the Greek economy" debunking the poppycock that "serious" news sites (not to mention economists) are propagating regarding the data before the crisis.

That would be very useful.  I can only 'dip' into the discussion/analysis intermittently so anything helping to separate Reality from the Intellectual Sludge hiding Reality would be welcome.

...is that the sort of thing we all have in mind that ET reports are about?

From my perspective: Yes.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Sun Jun 19th, 2011 at 11:50:42 AM EST
[ Parent ]
Mail coming your way.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Jun 19th, 2011 at 12:51:28 PM EST
[ Parent ]
According to the FT.

Greek unit labour costs have risen by 50 per cent since 2001. This compares with a eurozone average of about 25-30 per cent and a German cost increase of little more than 6 per cent. Even Portugal has a much lower increase than Greece of some 36 per cent.

So yeah, massive wage inflation.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jun 25th, 2011 at 03:18:53 PM EST
[ Parent ]
Uh, no, you can't conclude that from the data given. The data given is also consistent with asset stripping.

I note, in passing, the inherent dishonesty of comparing to German unit labour costs, since German wages have failed just as much as Greek wages to track productivity.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 25th, 2011 at 03:43:06 PM EST
[ Parent ]
Not dishonest, as in the next sentence it's mentioned that German salaries need to increase. And as far as I know, there has been no evidence of any unusually large asset stripping in Greece in the decade leading up to the Greek crisis.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jun 25th, 2011 at 04:01:01 PM EST
[ Parent ]
Greek unit labour costs have risen by 50 per cent since 2001

50% is outlandish even for nominal compensation. I would like to see that sourced. I'm having second thoughts about Jones' numbers, but certainly noone has claimed 50% increase in even nominal ulc netween 2001 and 2009

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Jun 25th, 2011 at 07:15:10 PM EST
[ Parent ]
As I said, Jones was using 2009 projections, but since the economy collapsed in 2009 these were not accurate. Here he restates his case with updated numbers

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Jun 25th, 2011 at 07:41:17 PM EST
[ Parent ]
One could play BTW with this from the University of Pennsylvania Center for International Comparisons and see how GDP per person per hour worked compared:


The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Jun 25th, 2011 at 07:38:37 PM EST
[ Parent ]
In GDP per capita, Greece is now below where it was in the 1990s.
by Upstate NY on Sun Jun 26th, 2011 at 07:51:48 PM EST
[ Parent ]
If the surplus is handed to the workers then they typically consume it and consume cheap goods and services (like taking vacations), which will tend to be imported and thus eradicate the surplus.

If the surplus is handled by industrialists it will be invested, thus turning to wages, then imports.

If the surplus is going to remain as surplus it needs to be kept as foreign assets, thus handled by financial gamblers. And what assets are more profitable in the short run for the financial gambler then dodgy assets?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Fri Jun 17th, 2011 at 05:07:40 PM EST
[ Parent ]
Recycling the surplus would mean, among other things, investing in the likes of Brodosplit in order to make their quality product price-competitive, not shutting them down because they can only price their outstanding product at a saleable price with the help of public subsidies. In other words, in order to compete with China you don't make high-end producers in low-capital-plant EU member states go out of business. You improve their capital plant.

The EU is currently unable to do this kind of thing, and the only surplus recycling allowed by market worship is the purchase of dodgy bonds. In fact, in investing in capital plant in chronically underinvested countries the EU would be introducing competition into the niche of historically well invested countries producing high-end goods.

Varoufakis' idea (part 3 of his modest proposal) is to have the European Investment Bank do it funded by contributions from the surplus countries to an EU-level budget.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sat Jun 18th, 2011 at 02:35:30 AM EST
[ Parent ]
Given the track record of the ECB, the European Commission and other assorted EU bureaucracies, would you entrust them with a massive project to evaluate which companies would receive injections of huge amounts of taxpayer money?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jun 18th, 2011 at 10:27:54 AM EST
[ Parent ]
And we're also seeing what happens when private institutions - banks and credit rating companies - are entrusted to oversee massive projects with injections of huge amounts of private money.  Hypothesizing corporations are necessarily better at long term planning and resource allocation than governments is as fallacious as to think governments are necessarily better at it than corporations.  

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Sat Jun 18th, 2011 at 11:40:54 AM EST
[ Parent ]
We have seen that in the current regulatory climate many banks and real estate developers and so on, the so called FIRE sector, has failed in many places. Not everywhere, but in many places.

However, this does not mean that eurocrats or politicians would manage FIRE better, nor that non-FIRE enterprises which in general seem well managed, need any more political meddling what so ever. It means the FIRE sector requires better regulation.

The Greek government has failed utterly in reining in its deficit through tax raises and spending cuts: indeed, when the Karamanlins government took power in 2004 and saw that the country was at the edge of a cliff, it pushed as hard as it could on the accelerator, increasing spending massively, including a 60 % (!!!) salary raise for public servants. This utter failure of democratic government does not mean it should be abolished and replaced by rule of corporations. Politicians should be careful not to try running businesses, and businessmen should be very careful not to try running countries. If they do, you get the USSR and USA respectively.

   

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jun 18th, 2011 at 12:07:14 PM EST
[ Parent ]
The Greek government has failed utterly in reining in its deficit through tax raises and spending cuts

Unless you have a plausible story about how removing the Greek sovereign deficit would have repaired the foreign balance, it would have been pissing into the wind. The debt load would have increased just the same, and judging by Greece's Mediterranean neighbours it would have increased by means of a speculative real estate bubble.

That is, unless you can make the case that the Greek sovereign (a) had a larger import quota than the Greek private sector or (b) spent the money in ways that materially degraded Greece's ability to obtain hard currency, eliminating the sovereign deficit would not have prevented the crisis. It might have brought it forward, by inducing a business depression due to demand shortfall, or it might have made it bigger by inducing a private sector bubble. But wage suppression always eventually comes back around to bite someone in the ass with a demand-side depression, and the wage suppression was going on outside Greek jurisdiction, so it's a little hard to blame them for that.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 18th, 2011 at 12:36:01 PM EST
[ Parent ]
Imports would also had to be cut, and the competitivness of export companies increased, as we have discussed in other places. A great idea is to avoid massive wage inflation that is completely disconnected to productivity increases... Furthermore, nothing requires that foreign balance deficits must be balanced through the issuance of debt, private or public. It can just as well be financed by foreign entities aquiring equity in domestic companies.

Speculative real estate bubbles can be reined in with regulation, if you lack the ability to raise rates (not that I'm going to focus much on this, as it wouldn't surprise me if we'll find that Sweden has failed at this very thing).

And yes, I place a very large part of the blame on "responible" German labour unions for accepting the wage suppression.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jun 18th, 2011 at 12:55:47 PM EST
[ Parent ]
Imports would also had to be cut, and the competitivness of export companies increased, as we have discussed in other places.

Well, yes.

But it is not immediately obvious how this has any simple, mechanical relation to the sovereign balance.

A great idea is to avoid massive wage inflation that is completely disconnected to productivity increases...

Has this actually happened? Do we have time series for Greek wages and productivity around here somewhere, or are we talking out of our posteriors here?

Furthermore, nothing requires that foreign balance deficits must be balanced through the issuance of debt, private or public. It can just as well be financed by foreign entities aquiring equity in domestic companies.

Ah, the foreign direct investment pony. I was wondering when that one would show up.

Thing is, when all traditional avenues of (neo-)mercantilist policy have been choked off, Greece is left with precious few policy options to encourage FDI. And most of them are bad for both the Union and, in the medium term, for Greece.

Speculative real estate bubbles can be reined in with regulation,

Yes.

But, again, it is not immediately apparent how this will repair the foreign balance.

Certainly, you can repair the foreign balance by gutting demand so far that your economy stops importing food and fuel. Please refer to Suharto's Indonesia for the results of that and get back to me if you still think that's a good idea.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 18th, 2011 at 05:27:57 PM EST
[ Parent ]
Has this actually happened?

Chance would be a fine thing.

This is the usual brain rot excuse - what if wages outstrip productivity?

Well - what if they do? Profits and dividends can always be cut to keep prices level. It's not as if leaving profits and dividends to accumulate is actually going to drive investment.

But apparently this realisation is unpossible. Spending on wages must always be cut first, and must be cut more and more severely, until - er - only millionaires have anything left to spend.

At this point austerity can be applied, the state can be bought, and the cycle can repeat elsewhere.

It's specious nonsense. We know that wages and productivity have been disconnected since the 70s - which is, incidentally, when this idea first became something that "everyone knows" i.e. that paying people too much was the primary cause of the inflationary shocks that were actually caused by energy price increases and by Nixon's default on US obligations.

And for the proponents - in what sense is what's happening to Greece now significantly better economically than what happened to Weimar Germany?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Jun 18th, 2011 at 05:38:06 PM EST
[ Parent ]
in what sense is what's happening to Greece now significantly better economically than what happened to Weimar Germany?

It's not, of course.  

During the middle years of the Weimar Republic Germany experienced a burst of "prosperity" based on capital inflows (debt accumulation.)  This inflow was used for current account purposes instead of being deployed as long term capital to increase productive capacity  -- & is this beginning to sound familiar?  

:-)

It's the same old story: the inability to cognize the fundamental difference between "wealth" and "accumulating stuff."

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Sun Jun 19th, 2011 at 12:02:19 PM EST
[ Parent ]
A great idea is to avoid massive wage inflation that is completely disconnected to productivity increases...

No, this has not actually happened... I've quoted Erik Jones many times, here's one more:

Let's start with some data - all of which is taken from the Annual Macroeconomic Database of the European Commission and is freely available on-line.  The most damning data against Greece is the movement in real compensation per employee.  If we set the year 2000 equal to 100, then by 2009 Greece was at 122 while Germany was at 102.  This would suggest that Greek real wages have risen by 20 percent more than Germany - and they have - but that tells us very little about competitiveness.

What matters in terms of a head-to-head competition is how Greece and Germany compare in the cost of labor per unit of output and not the real compensation of employees.  Moreover, we should look at their performance across the European marketplace as a whole.  By that measure, if we set the year 2000 equal to 100, then by 2009 Greece was at 98 while Germany was at 95.  Germany is still doing better than Greece, but only by a little and both have improved against the rest of Europe.

In fact Greek (inflation adjusted) wages lagged behind productivity increases all through this whole bubble period. And mind that the wages themselves were increasingly unequal... Inflation in Greece was profit driven.

As for productivity increases, check at this EUKLEMS report, p. 14

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Jun 18th, 2011 at 06:37:02 PM EST
[ Parent ]
If this is so, that compensation per labour outout is more or less the same in Greece and Germany, how can it be that Greek companies can't compete?

Seems to me Greek politicians should ask themselves what they should change in their country to attract and keep succesful companies in their nation.

Why should I choose Greece over say Bulgaria, Poland or India when I choose where to site a new factory manufacturing say, advanced cables, or machinery?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Jun 19th, 2011 at 10:16:48 AM EST
[ Parent ]
Why was Brodosplit closed as a condition of EU accession for Croatia?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:19:47 AM EST
[ Parent ]
I can't really recall. But it had something to do with subsidies.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 10:27:14 AM EST
[ Parent ]
And I don't thuink Brodsplit has actually been closed, either.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 10:27:52 AM EST
[ Parent ]
It's not going to be producing many civilian boats any more.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:29:32 AM EST
[ Parent ]
It's built three this year already. http://en.wikipedia.org/wiki/Brodosplit

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 10:39:28 AM EST
[ Parent ]
Any new contracts for future production?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:50:11 AM EST
[ Parent ]
I've got no idea. I usually only read the annual reports of companies I consider investing in, for myself or the foundations.

But, yes: http://www.brodosplit.hr/eng/PRESSCENTER/Newsrelease/tabid/3061/articleType/ArticleView/articleId/96 7/Building-of-bulk-carriers-is-contracted.aspx

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Jun 19th, 2011 at 11:14:35 AM EST
[ Parent ]
You seemed to have an opinion about the quality of the output, though.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:30:00 AM EST
[ Parent ]
The ships are of excellent quality, just like the oil tankers we used to build in Sweden were. But you know what? They couldn't compete. They were too expensive. So we had to close the shipyards, as we didn't feel like dumping unlimited amounts of taxpayer money into loss-making companies for ever and ever.

We could still build excellent ships in Sweden. But no one would buy them for the prices we would require to cover our costs. That's just the way of the world.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Jun 19th, 2011 at 10:35:32 AM EST
[ Parent ]
We could still build excellent ships in Sweden. But no one would buy them for the prices we would require to cover our costs.

And now...

... you can't.

But I'm sure the strong krona was worth it. For the lawyers.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 19th, 2011 at 10:48:04 AM EST
[ Parent ]
That industry didn't collapse as a result of the strong krona, it collapsed due to too high salaries 30 years ago.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 11:15:37 AM EST
[ Parent ]
Does Sweden still build its own military or coast guard ships?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 11:31:31 AM EST
[ Parent ]
Only submarines (for the Navy), small patrol boats (circa 25 metres, for the Navy and Coast Guard) and small amphibious assault craft (15-25 metres, for the Swedish Marines).

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 12:37:08 PM EST
[ Parent ]
The point being, in the EU you're allowed to have industrial subsidies as long as you use the military for cover. Just like the US and its crassly Keynesian Military Industrial Complex.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 06:13:48 PM EST
[ Parent ]
According to Jones, it's a capital account problem

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sun Jun 19th, 2011 at 11:34:37 AM EST
[ Parent ]
Imports would also had to be cut, and the competitivness of export companies increased, as we have discussed in other places.

But the government of an EU member state is not allowed to do anything in these areas. All it is allowed to do is deregulate.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:23:52 AM EST
[ Parent ]
It sure is allowed to do things! Improving infrastructure, fighting corruption, cutting red tape, changing taxes and so on and so on. The only thing which is disallowed is subsidies.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 19th, 2011 at 10:32:01 AM EST
[ Parent ]
However, this does not mean that eurocrats or politicians would manage FIRE better, nor that non-FIRE enterprises which in general seem well managed, need any more political meddling what so ever. It means the FIRE sector requires better regulation.

In my experience working for US, British, German, and Swiss companies there's as much Own Goal "political meddling" within and between companies as there is from the government.  Brass tacks: whether the entity is Public or Private it is run by people and people "do" politics.  An 'Empire Builder,' whether in government or IBM WILL attempt to build an Empire; a person motivated by the Common Good will work towards that.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Sat Jun 18th, 2011 at 01:12:32 PM EST
[ Parent ]
would you entrust them with a massive project to evaluate which companies would receive injections of huge amounts of taxpayer money?

NO! That is the problem with capture of "public" institutions by private interests. This is the case for The Fed in the USA and the ECB in Europe. But your line of argumentation is how we got to this point and not a way out of the dilemma. We have had forty years of unchallenged propaganda advocating "deregulation" and painting "government as the problem". Enough people have bought into this that it has become true.  

It wasn't always thus. There was a time when there was a concept and an expectation of government working in the public interest. As De Gondi recently reminded us, Artistotle defines tyranny as a government run for private, not public, interests. Forty years of right wing propaganda from libertarian billionaires has sold the publics in the "developed" world on the virtues of tyranny! So now we need for the duped to wake up and to insist on a housecleaning.  


As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jun 18th, 2011 at 12:20:23 PM EST
[ Parent ]
Given the track record of "finance, the brain of the economy" in the allocation of capital and the determination of the direction and pace of investment and the rate of money creation... don't you think the economy needs a brain transplant?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Jun 19th, 2011 at 10:21:49 AM EST
[ Parent ]
I think a brain implant would be more appropriate. "Finance as the brain" always seems to have its rational, judgemental and predictive functions sidelined by orgiastic biochemicals released by ongoing and never ending greed.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 22nd, 2011 at 09:07:16 AM EST
[ Parent ]
 

  Again, that's not primarily a Greek issue. It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies.

- Jake

 

  And yet, only yesterday, during his so-called news conference, french president Sarkozy was seen and heard making a complimentary object-lesson out of this very policy of the Germans' wage suppression(s).

  And he gets away with this!

   Look, I know our abilities to take some useful action to help are very limited here but couldn't EuroTrib at the very least do something in an organised way to vocifierously oppose the juggernaut of eco-nonsense that's still being piously peddled in the popular press, radio and television?

   France Info, France-Inter, and others, for example, continue to report off-handedly that the austerity measures --called bail-outs, etc.--are aimed at "rescuing Greece" rather than what they obviously are: a rescue of the financial interests which made lousy and corrupted investment decisions.

   Imagine the impact of hearing a news report describe Germany's wage suppression policies as being and having been "irresponsible"!  

   I was struck by that; others would be as well.  The flim-flamming is still going on flagrantly and with little apparent "blow-back" or negative consequences for those who are brazenly peddling theoretic bull-shit.  Why, now, is this still allowed to go on?

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge

by proximity1 on Wed Jun 29th, 2011 at 08:06:59 AM EST
[ Parent ]
BBC News - Greece crisis: Not Europe's Lehman (it could be worse)

Eurozone finance ministers' overnight decision to withhold payment of 12bn euros (£10bn) of emergency loans to Greece, pending agreement by the Greek parliament on austerity measures and privatisations, would be rational and credible on the basis that Greece has more to lose from a disorderly Greek default than the eurozone itself.

Or to put it another way, threats are only worth making if those making the threats could actually carry them out.



Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Jun 20th, 2011 at 06:54:00 AM EST
real economics
Germany was forced to agree to bail out Greece for the second time in a year under strong pressure from the International Monetary Fund following the resignation last month of its head, Dominique Strauss-Kahn, the Guardian has learned.
Under its acting chief, the American John Lipsky, the IMF has taken a more hardline stance. The fund warned the Germans in recent weeks that it would withhold urgently needed funds and trigger a Greek sovereign default unless Berlin stopped delaying and pledged firmly that it would come to Greece's rescue.
Senior officials and diplomats in Brussels confirmed that the IMF threat to pull the plug on its funding, in stark contrast to the more emollient line of Strauss-Kahn, had been defused because of a German climbdown.


"We can all be prosperous but we can't all be rich." Ian Welsh
by melo (melometa4(at)gmail.com) on Mon Jun 20th, 2011 at 02:15:38 PM EST
[ Parent ]
Finnish robber baron:

http://yle.fi/uutiset/news/2011/07/urpilainen_announces_a_greek_guarantee_model_2704077.html

Our "left" leader is now dreaming of greek property.
Before elections, it was all about debt re-structuring and bank responsibility, now it's 100% opposite. Banks should be bailed out, the poor should pay. Her fellow leader of "socialist international" in Greece likely joins the chorus.
If this does not tell us what "socialists" are, what will? They should be wiped out to the dust bin of history as soon as possible. We need Marxist critique, not socialists.

by kjr63 on Tue Jul 5th, 2011 at 05:54:49 AM EST


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