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What should Spain do?

by kcurie Wed Apr 28th, 2010 at 06:26:53 AM EST

Now, really a simple question (or two).


If the brilliant minds in Europe do not bail out Greece and a tsunami of finantial weapons of  mass destruction (a.k.a CDS) destroy a subset of  banks, and scares investor out of Portugal debt which will lead to a total freeze out of the World debt market. What should Spain do when the refinancing of its debt can not find any willing buyer?

And in the case that Greece is bailed out , and total destruction of aggregate demand is demanded (Am I not cute with this retruecanos?), what should Portugal and Spain do when they request the same thing from two economies which are very close to recovery if they are only left alone?

I really want to know what you think about it... it is the only place when I can get some insight.

Display:
It is actually a serious question. what is a government supposed to do?

I also posted the question in krugman's blog.. but I trust your insight more... seriously.

Any idea?

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 Wed Apr 28th, 2010 at 09:29:32 AM EST
If some sort of aid is approved for Greece, Portugal and Spain will likely make way without aid themselves.

What they can do long term is one of the following:

a) push for the right mechanisms or institutions to deal with such crisis (e.g. enact an European Treasury);

b) close the deficit and adhere to the Germanic budget school.

They can also try to do both.

You might find me At The Edge Of Time.

by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Wed Apr 28th, 2010 at 10:44:06 AM EST
One possibility would be to split the euro zone into two currencies: a neuro and a seuro, one for the north and the other for the south, but let the north keep calling theirs the euro. Then establish a Seuro Treasury and Southern Bank to provide interest rates and monetary policy to provide close to full employment.

Such a coordinated move might be less damaging than countries withdrawing one by one to be left isolated and starving. Denominate Seuros in terms of euros and issue a stated policy of convergence based on equitable treatment of the two populations.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 28th, 2010 at 12:08:07 PM EST
[ Parent ]
Some factions of Conservative America have long dreamt about this. Keep dreaming.

You might find me At The Edge Of Time.
by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Thu Apr 29th, 2010 at 03:15:49 AM EST
[ Parent ]
The only solution to this crisis seems to me for the ECB to buy sovereign Euro debt with newly issued currency using private banks as intermediaries.

And for someone to bang a few heads together in the Eurogroup to get a coordinated fiscal policy.

Otherwise, we'll end up with Germany standing on top of a pile of defaulted bonds from the rest of the Eurozone.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Apr 28th, 2010 at 11:09:58 AM EST
It is an option. Inflation in Germany is even better. China giving social security benefits to change the transantlatic trade strucutre also very good. Strong price signals to change the energetic mix even better.

Forbidding CDS, open market derivate, oligopoly of banks with strong regulation on mortgages even better.

But meanwhile, why not a normal bail out 1t 3 %? It should be enough if Europe creates an structures so that Greece doe snot do crazy things in the future.

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 Wed Apr 28th, 2010 at 12:29:31 PM EST
[ Parent ]
And for this bailout, how much will Spain's people pay in destruction of their welfare state?

fairleft
by fairleft (fairleftatyahoodotcom) on Wed Apr 28th, 2010 at 01:33:42 PM EST
[ Parent ]
I expect Spain to commit at least €6bn to the Greek bailout, €8 after Germany declares that they won't be participating.

FT Alphaville: My Big Fat Greek bailout

GERMAN GREENS MP TRITTIN SAYS IMF CHIEF STRAUSS-KAHN SAYS GREEK AID PACKAGE WORTH 100-120 BLN EUROS OVER 3 YEARS

...

GERMAN SPD MP SAYS GERMAN INVOLVEMENT IN GREEK AID WON'T BE LESS THAN 25 BILLION EUROS

GERMAN SPD MP SAYS EURO MEMBER STATES TO BE SUBORDINATE CREDITORS ACCORDING TO AID PLAN



The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Wed Apr 28th, 2010 at 02:42:15 PM EST
[ Parent ]
Standard & Poor's has downgraded Spain debt rating to AA; blames subdued economic growth

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Apr 28th, 2010 at 11:40:11 AM EST
Fitch followed up yesterday, in response to the fiscal austerity measures passed the day before.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 29th, 2010 at 05:24:45 AM EST
[ Parent ]
There are ideological stakes as well, which we can't forget.

Spain and Portugal can't be left alone because of those stakes.

When you read about coordinated European policy, all I hear is a dismantling of the current social system.

by Upstate NY on Wed Apr 28th, 2010 at 12:00:42 PM EST
Hmm. I suppose that this has nothing to do with attacking Left governments in Europe.  After all, the map below shows the Left governments in Red, the right in Blue, and the weird ones are grey.  And clearly it's not the case that the countries being attacked as in danger of  sovereign debt default are red, and the states leading the attack against them are blue.  Oh.  Actually is basically is.



And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed Apr 28th, 2010 at 04:29:30 PM EST
[ Parent ]
UK should be blue too.


Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Wed Apr 28th, 2010 at 05:04:14 PM EST
[ Parent ]
Cute.

But, like it or not, Labor is the Left party in the UK. As much as people want to see the LibDems as some kind of turn to the Left, the truth is that they are the same that Obama was.  A revolt of the middle classes whose goal isn't to create a social democracy, but to secure their position in society.  

That antiwar shtick is great, but it doesn't make you a Leftist.  It makes you a liberal.  

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed Apr 28th, 2010 at 06:12:12 PM EST
[ Parent ]
Like it or not, New Labour (with Brown as Chancellor) did things like the infamous 10p tax reform which resulted in poor people paying more tax at the expense of the middle class. They were also atrocious on civil liberties, and had all kinds of tax incentives directed towards the middle class and of no use to low-income people.

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Wed Apr 28th, 2010 at 07:19:59 PM EST
[ Parent ]
That's true, but Brown has been a major proponent of stimulus spending to fight the recession, which leaves him on the wrong side of the narrative in the press right now.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Apr 28th, 2010 at 09:49:23 PM EST
[ Parent ]
Like it or not, I call it the way I see it.
If the "Left party in the UK" has become a Right party -it has- then I'll call it a Right party.

New Labour is in no way a leftist party. It's very close to Thatcher, which was extreme right.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Apr 29th, 2010 at 04:13:11 AM EST
[ Parent ]
It may all be a pack of lies, but here are some of the Lib Dem positions on social issues:

Your Money

Under this Government millions of people on low incomes are forced to pay hundreds of pounds in income tax every year, keeping pensioners on the breadline and meaning that for many people in low paid jobs work simply doesn't pay. Even a person working full-time earning minimum wage has nearly £1000 taken in income tax. At the same time we have a tax system that lets big business and the very rich treat tax as if it is optional.

...

We propose to raise the threshold at which people start paying income tax from current levels to £10,000, cutting the average working age person's income tax bill by £700 and cutting pensioner's income tax bills by £100. These plans will mean that almost 4 million people on low incomes will no longer have to pay any income tax at all.


Jobs
Thousands of people are losing their jobs every day as the recession takes hold. People losing their jobs are worried about how they will pay their bills and mortgages and how long it will take them to get another job. They are shocked and frustrated when they walk into a Jobcentre to find that they will have to wait 12 months for the chance to get extra training or professional support to find a job.

...

Young people have been hit hard by this recession and they need encouragement, support and practical help to improve their skills and enhance their work readiness. We need to keep young people within reach of the job market and we will do this by paying any young person completing an internship or work experience £55 a week for three months. At present only young people from better-off families can afford to build up their work experience; our proposals will mean up to 800,000 young people from all backgrounds will be able to take these opportunities.

Education

Too many children are still leaving school without the knowledge and skills to be successful. Finding a good school is a struggle, lessons don't always stretch the brightest or support those who need more help, and classes are often too big for teachers to control.

...

For those youngsters leaving school, university is getting more and more expensive. To get a degree, young people are saddled with thousands of pounds of debt when it is tough enough to get a job, get on the housing ladder and make ends meet.

Liberal Democrats are the only party which believes university education should be free and everyone who has the ability should be able to go to university and not be put off by the cost.



The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Thu Apr 29th, 2010 at 04:26:29 AM EST
[ Parent ]
If the LibDems win a plurality and form a minority government, would they be grey?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Apr 29th, 2010 at 02:23:27 PM EST
[ Parent ]
You coloured that map yourself with your own interpretation of what "right" means, correct? Nice try.

Wikipedia has a map illustrating voting in the EU Council by EU-wide political party:

That's better.

Why did you put Austria and Slovakia in the "weird" category?

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Apr 28th, 2010 at 07:25:56 PM EST
[ Parent ]
You coloured that map yourself with your own interpretation of what "right" means, correct? Nice try.

Hey, don't hate me just because I like crayons.

I did it on the quick.

The map above is problematic too, because it uses representation in the EU council which may be a different part of the executive (like a president) than the part that forms domestic policy (the PM).

The problem with Austria and Slovakia is that they have split coalition governments.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed Apr 28th, 2010 at 07:30:56 PM EST
[ Parent ]
It's not the crayons but the dychotomous thinking...

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Thu Apr 29th, 2010 at 03:58:10 AM EST
[ Parent ]
... the political systems are not so strongly biased to two party rule as in the US and UK ... and if you judge by deed rather than by rhetoric, the UK under New Labor is more a center-right government governing under centrist rhetoric, with occasional outbreaks of center-left rhetoric directed to convincing the left wing of the electorate that they are the LOTE.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Apr 29th, 2010 at 02:29:29 PM EST
[ Parent ]
And clearly it's not the case that the countries being attacked as in danger of  sovereign debt default are red

Isn't Italy included in the PIIGS?

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Apr 28th, 2010 at 07:27:13 PM EST
[ Parent ]
Isn't Italy included in the PIIGS?

Yes.  But notice that the focus has been on Portugal and Spain.  That's all the more confusing when you look at the debt ratings.

Italy's two steps below Spain, yet you don't here nearly as much hand wringing about that country.  Why?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed Apr 28th, 2010 at 07:34:18 PM EST
[ Parent ]
Because we all know what happens when you let the Italians run things anyway, so it's been priced in.

(I kid, I kid.)

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Apr 28th, 2010 at 09:47:54 PM EST
[ Parent ]
Also notice that, according to Eurostat, Italy's debt to GDP ratio, at 115.8%, is higher than Greece's (115.1%)

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Thu Apr 29th, 2010 at 02:47:13 AM EST
[ Parent ]
See Eurostat's Provision of deficit and debt data for 2009 - first notification [PDF] (April 22, 2010)
Euro area and EU27 government deficit at 6.3% and 6.8% of GDP respectively

Government debt at 78.7% and 73.6%

...

Twelve Member States had government debt ratios higher than 60% of GDP in 2009: Italy (115.8%), Greece (115.1%), Belgium (96.7%), Hungary (78.3%), France (77.6%), Portugal (76.8%), Germany (73.2%), Malta (69.1%), the United Kingdom (68.1%), Austria (66.5%), Ireland (64.0%) and the Netherlands (60.9%).

...

Greece: Eurostat is expressing a reservation on the quality of the data reported by Greece, due to uncertainties on the surplus of social security funds for 2009, on the classification of some public entities and on the recording of off-market swaps. Following completion of the investigations that Eurostat is undertaking on these issues in cooperation with the Greek Statistical Authorities, this could lead to a revision for the year 2009 of the order of 0.3 to 0.5 percentage points of GDP for the deficit and 5 to 7 percentage points of GDP for the debt.



The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Thu Apr 29th, 2010 at 04:03:30 AM EST
[ Parent ]
Beppe Grillo's Blog
"We have to have fiscal federalism or else Italy will go the same way as Greece, it is absolutely essential." Bossi said this without adding that with fiscal federalism, the cost of which no one has bothered to work out, we will go the same way as Argentina. It's hard to choose whether to declare bankruptcy immediately or to delay? The rating agencies downgraded the Greek government bonds to the status of trash. There is no longer a market for Greece's debt and the Country's bonds are completely unsaleable. The only ones buying them are the Greek banks, ordered to do so by the central Government.
Without access to debt, Greece can only plead for charity from other Countries in order to avoid bankruptcy and default on its public debt repayments, with its subsequent exit from the Euro.
This charity, which is inadequate in any event, has been slow in coming, and the aid required in order to avoid immediate bankruptcy is estimated to be 45 billion Euro. Greece needs to find 160 billion Euro over the next three years just to fund the interest payments on its maturing government bonds and its annual deficit between income and expenditure. The 45 billion Euro loan will be partly funded by the International Monetary Fund, to the tune of 10/15 billion, and the remainder by a number of European Countries, amongst them Germany with 8.4 billion and Italy with 5.5 billion (almost triple the amount contributed by Holland and more than Spain's 3.7 billion).
86% of all Germans are against the loan. They don't want to pay the price for other Countries' free spending. Tremorti, instead, is very enthusiastic, but the opinion of the Italians is unknown, mainly because no one has even bothered to ask them what they think. Before handing over any of the German people's money to Greek Prime Minister George Papandreou, Ms. Merkel is demanding some sort of assurance that Greece will balance its books. Instead, Tremorti is in a hurry to hand out the loan for fear that the fire will spread. Indeed, Greece is very close by. Our public debt currently stands at approximately 1,800 billion and during the first few months of 2010 it increased by more than 30 billion, while Italy's unemployment rate is comparable to that of Greece. Our import/export balance for 2009 stood at minus 280 million Euro, while in 2008 it was plus 10 billion. Our tax revenues are declining month after month, our public debt is increasing continuously and our debt to GDP ratio is the worst it has been in the past ten years at 52.3%.
The Greek and Italian figures are very similar indeed. In some areas theirs are worse and in other areas ours are worse. If Greece eventually fails, the Euro will totter. If Italy eventually fails, the Euro will sink altogether, together with all our creditors. For the time being, our huge public debt is also our saving grace.
In 2010, Tremorti will have to move 450 billion Euro worth of government bonds and pay out 70/80 billion in interest (equivalent to 4/5 annual budgets) on the bonds already issued. The Greeks are absolute amateurs by comparison.


'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Thu Apr 29th, 2010 at 05:46:17 PM EST
[ Parent ]
aye, that's a conundrum i ponder daily...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Thu Apr 29th, 2010 at 09:10:37 AM EST
[ Parent ]
so can one hope that the UK and the US are next in line? That ould maybe help shake the Washington/Brussels consensus loose...

Wind power
by Jerome a Paris (etg@eurotrib.com) on Thu Apr 29th, 2010 at 05:17:44 AM EST
[ Parent ]
Were Greece actually to default I suspect that all eyes would turn to Wall Street, because the spectacle there would dwarf all others, as in the fall of 2008. Even better, coordinate action so as to make all of the CDSs written around Greek debt worth far less than they are right now.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 29th, 2010 at 10:47:47 AM EST
[ Parent ]
The "left" in those countries has been captured by their financial sectors, City of London and Wall Street respectively.

Remember that in the US, Obama was the keynote speaker at the launch of the Robert Rubin (former exec at Goldman Sachs) inspired Hamilton Project.  The idea was to kill economic populism in the Democratic Party after the victories in the 2006 midterms.  

The UK is similar.  Unions have been abandoning Labour for a while, at least since the abolition of Clause 4 and the end of block voting by affiliates of the TUC casting votes for their members en masse.

Zapatero is arguably the foremost socialist politician in all of Europe today.  He's no Gonzalez, and he's pulled back from the movement towards neo-liberalism.  

Not to mention that I think that the comments from the finance minister Salgado, about speculators attacking Greece, rattled the masters of the universe in London and New York.....

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Apr 29th, 2010 at 10:51:27 AM EST
[ Parent ]
Zapatero is arguably the foremost socialist politician in all of Europe today.

He's also waaay beyond his depth in this economic crisis. As is his new Economy minister Elena Salgado.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu Apr 29th, 2010 at 05:12:39 PM EST
[ Parent ]
Upstate NY:
a dismantling of the current social system.

SOP neolib anglo capitalist panacea.

social fabric-ripping race-to-the-bottom me-firstism.

...until the plebs show them new boundaries?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Apr 29th, 2010 at 07:00:34 AM EST
[ Parent ]
Will the Plebs have any awareness?

My listserv this morning reports that Middlesex U. in the UK is shuttering a very well-regarded Philosophy program, putting noted humanists and critics out of work. Will the Plebs receive an education that produces anything like critical analysis?

by Upstate NY on Thu Apr 29th, 2010 at 09:18:57 AM EST
[ Parent ]
i hear ya...

my hope is in the new medium of the internet providing self-educational possibilities galore.

reality alone will do it eventually, if history is guide.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Apr 29th, 2010 at 09:24:11 AM EST
[ Parent ]
I don't think new media can do it.

But I'm an academic.

I once asked my teacher of Postmodern thought how the hell any of it occurred to anyone.

He said, none of it occurred to anyone. This development is a gradual one and has taken about 3,000 years.

I realize that this makes academics a self-perpetuating entity in a closed circuit, but I was outside that circuit at one point, and was sucked in by the in-ness.

Good luck, everyone. Signing off, the human race.

by Upstate NY on Thu Apr 29th, 2010 at 09:33:12 AM EST
[ Parent ]
The destructive, self-serving nature of an inequitable system will very rarely occur to a beneficiary of that system. But, as the system proceeds, there are fewer and fewer beneficiaries and more and more victims. The question becomes one of whether they will see and reject the inequitable system or be mis-directed off against an identifiable sub-set of victims that is conveniently suitable for demonization in the interests of the benefactors of the system.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 29th, 2010 at 10:56:00 AM EST
[ Parent ]
How many goons with Gatling guns can you hire to guard your mansion?
by Upstate NY on Thu Apr 29th, 2010 at 11:00:28 AM EST
[ Parent ]
And how long before they turn on you? Lloyd Blankfein does not come across as a very credible employer of physical violence.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 29th, 2010 at 11:11:10 AM EST
[ Parent ]
by Upstate NY on Thu Apr 29th, 2010 at 09:39:34 AM EST
[ Parent ]
Go and sign!

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu Apr 29th, 2010 at 09:58:58 AM EST
[ Parent ]
Spain Has Rating Cut to AA by S&P as Greek Contagion Spreads - Bloomberg.com
Spain had its credit rating cut one step by Standard & Poor's to AA, putting it on a par with Slovenia, as contagion from Greece's debt crisis spreads through the euro region.

S&P said in a statement today that the outlook on Spain is negative, reflecting the chance of a possible further downgrade if the "budgetary position underperforms to a greater extent than we currently anticipate." Spain was last cut by S&P in January 2009.

The risk premium investors demand to hold Spanish bonds surged to the highest in more than a year today and the price of insuring Spanish bonds against default reached a record as doubts about Greece's ability to pay its debt spilled over into Spanish and Portuguese markets.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Wed Apr 28th, 2010 at 12:00:44 PM EST
I know it's useless to raise this point, but it's really messed up how non-independent ratings are.

In effect what has happened here is that the Spanish rating has been cut because of uncertainties raised by the cut in the Greek rating...

by Metatone (metatone [a|t] gmail (dot) com) on Wed Apr 28th, 2010 at 12:19:13 PM EST
[ Parent ]
sure seem confident that they will outlive European governments...

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 28th, 2010 at 12:53:20 PM EST
[ Parent ]
Hitler thought he'd have a thousand year Reich.......

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Apr 29th, 2010 at 10:52:28 AM EST
[ Parent ]
As did many others in 1939.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 29th, 2010 at 10:58:07 AM EST
[ Parent ]
The ratings agencies outlasted him though, didn't they?
by santiago on Thu Apr 29th, 2010 at 12:01:14 PM EST
[ Parent ]
Any idea about the feasibility of MIgeru's suggestion? Is it possible for Spain to issue  debt , arrange that the spanish banks buy this debt and then somehow the ECB buys it?

How would it be done? How would someone use the window discount of the ECB for banks to make this deal? Or would some kind of guarantee be enough?

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 Wed Apr 28th, 2010 at 12:49:42 PM EST
The process of buying through private banks is because of the provisions that rule out giving special treatment to public institutions.

The process of getting the ECB to do that would be convincing a sufficient number of heads of Eurozone Central Banks plus appointed members of the Executive Board that its a good idea. It would probably make sens to have a radically simply and direct means of doing it proposed by someone firmly committed to the idea and have some "compromise" solutions that accomplish the same fundamental objective available to be pushed in response to the outrage generated by the simple proposal.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Apr 29th, 2010 at 02:41:10 PM EST
[ Parent ]
What do the clever people at Santander, and other large large large profitable businesses based in Spain think?

Are they betting against Spain or Portugal even? or are they sitting up all night with other smart people trying to figure out how to keep clean the good name of the country that they get legitimacy from?

In 2007, Santander held its 150th anniversary as the world's 12th largest bank by market cap, the 7th in terms of profit and the bank with the largest retail network in the western world, with 10,852 branches.

The Santander Group is the fourth largest bank in the world by profits and eighth by stock market capitalisation. In 2009, its net ordinary profits were over EUR 8.9 billion, 1% more than the previous year, and it distributed more than EUR 4.9 billion in dividends to shareholders. With these figures, the Group achieved the target set at the Annual General Meeting of Shareholders held on June 19th 2009 to maintain its profits and the dividend payout.




Never underestimate their intelligence, always underestimate their knowledge.

Frank Delaney ~ Ireland

by siegestate (siegestate or beyondwarispeace.com) on Wed Apr 28th, 2010 at 01:16:23 PM EST
Krugman notes that the banking systems of Portugal and Spain appear to be under pressure:

Economics and Politics - Paul Krugman Blog - NYTimes.com

Portugal's budget woes aren't nearly as severe, on the surface, as Greece's. But it had a big real estate bubble, and now the market thinks the banks are in trouble. Via Business Insider, the CDS spreads
on banks:

But if the banks have to be rescued, however, this would hit the budget hard.

Incidentally, looking at that picture I wonder if Sovereign should stop highlighting the fact that it's part of a Spanish bank?

by Metatone (metatone [a|t] gmail (dot) com) on Wed Apr 28th, 2010 at 02:08:30 PM EST
[ Parent ]
Well, as we know German banks already enjoyed a €480bn bailout...

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Wed Apr 28th, 2010 at 02:36:10 PM EST
[ Parent ]
I suppose it's already in the works. Something like this, what they're doing to Greece, unless and until people wake up and realize this destruction is not a natural phenomenon:

Representatives of the IMF and the EU [and the ratings agencies?], like postmodern colonial administrators, are currently in Athens imposing further austerity to accompany the loan. Deep cuts in the public sector, reduction of civil servants' salaries and pensions of up to 30%, a VAT hike and extensive redundancies had already been accepted by the Papandreou government.

The new demands will decimate the public sector, undermine the national health service, privatise the remaining utilities and extend salary cuts to the private sector, destroying hard won employment rights.

http://www.guardian.co.uk/commentisfree/2010/apr/27/greece-imf-eu-welfare-state

fairleft

by fairleft (fairleftatyahoodotcom) on Wed Apr 28th, 2010 at 01:31:51 PM EST
First, there's the question of whom would be bailed out in the event of a Greek, or Iberian, bailout:

And in the case that Greece is bailed out, and total destruction of aggregate demand is demanded (Am I not cute with this retruecanos?), what should Portugal and Spain do when they request the same thing from two economies which are very close to recovery if they are only left alone?

It's not Greece that would be bailed out.  It's the Greek state's creditors that would benefit from EU generosity in that regard.  Greece and its citizens (at least those who aren't also among its creditors), would be bailed out if the Greek state simply defaulted on their loans, as many states have done in the past and will continue to do. The issue before the EU is whether EU citizens, as members of a group, should be forced to divert their resources to the people who lent money to Greece instead of just transferring the a portion of Greece's debt -- and the resources which it has claims for -- to the Greek state.  

A fair amount of research has been done on what happens to states that default on their debt, and the answer is: not much.  As economists William Buiter, Rogoff, and Reinhardt have said, it takes 3-5 years for a defaulting country to have their debt securities listed as investment grade again.  Markets always forget and forget quickly.

However, in the 3-5 year wait until borrowing opens up again, fiscal austerity can be quite severe for some people in defaulting countries, so are there alternatives to "TINA?" One alternative that hasn't gotten much play is frequently used by US state and local governments and could conceivably be employed by Greece, Portugal, Spain, or anyone else, but preferably in an improved and expanded way: Revenue Anticipation Warrants or Notes.  

As employed in the US, they are basically IOUs, and California, somewhat controversially, employed them last year to continue government functions when it had no cash on hand to pay anyone. It used them previously in the 1980's too, and are frequently used by many local governments throughout the US. They are interest bearing securities (for CA rated A-, investment grade) that mature within a short time period, but would be greatly improved if they were issued with no interest commitment or maturity date.  Rather their value would be guaranteed by being able to use them to pay taxes due to the state.  That is, they could become credit issues instead of debt issues as they are currently used in the US.

Such a policy device could provide any EMU country a means of regaining the power to implement a monetary policy to escape debt, and used responsibly (which means only in intermittent surprises, not ongoing means of financing government) such a device could result in sufficient net transfers of sovereign wealth from creditors to the state such that state consumption and social welfare is maintained and smoothed while fiscal adjustments are made to a more financially sustainable path.

by santiago on Wed Apr 28th, 2010 at 04:13:09 PM EST
In fact, California has been using RANs since 1992. Originally it was a stopgap forced by a cash crisis brought on by the recession (CA tried to pay state workers with IOUs, which the courts rejected). But it worked out so well that the state began using them as a matter of routine finance, particularly to cover expenses between November and April (when income tax revenues come in).

And the world will live as one
by Montereyan (robert at calitics dot com) on Wed Apr 28th, 2010 at 05:03:40 PM EST
[ Parent ]
I think its actually earlier than that even -- used in the relatively fiscally conservative administration of George Deukmejian (R), I believe.
by santiago on Wed Apr 28th, 2010 at 05:42:21 PM EST
[ Parent ]
Such an issue of credit instruments is exactly the sort of 'Sovereign Equity' I have been advocating for some time, and which the FT referred to in an editorial on 15th March. In the case of Spain, and other countries like Portugal and Ireland, suffering from unsustainable debt in the aftermath of a property bubble, I suggest that these governments issue redeemable Units of Sovereign Equity within a suitable framework.

These Units would then be used to acquire distressed properties from banks, or indeed from individuals who wished to participate, and these properties would then be held by a custodian within a suitable corporate partnership framework. Affordable rentals would be set, and the properties let, thereby creating a 'Rental Pool' which would be divided proportionally among the Unit holders, and service providers who operate the system.

Occupiers would be free to acquire Units simply by paying rental in advance and converting the advance payment to Units at the market price. They could also be credited with 'Sweat Equity' Units in return for maintenance to an agreed standard.

Even if Investors wishing to sell Units were unable to find other financial Investors to buy them, if the rate of return demanded rose, the Unit price would fall until Occupiers acquired Units for redemption against their rental obligation.

The outcome for banks would be better than any debt-based solution, while the rental would equally be more affordable than that necessary to cover debt financing. The reason for this happy outcome is of course the absence of capital repayment and compound interest in this quasi-Equity solution.

In this way, Units based on property rentals would come to replace existing €-denominated debt and would essentially be geographically based national currencies. This is not an entirely new idea except in its 'polarity' as a credit instruument, rather than an intermediated debt instrument such as that advocated by John Law in 1705, who then rather spoilt the implementation in France...... :-)


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Apr 28th, 2010 at 05:05:24 PM EST
[ Parent ]
Yes, you're exactly right. I should have cited you.
by santiago on Wed Apr 28th, 2010 at 05:43:17 PM EST
[ Parent ]
then it frees up quite a bit of money...

Wind power
by Jerome a Paris (etg@eurotrib.com) on Thu Apr 29th, 2010 at 05:16:15 AM EST
[ Parent ]
There is a huge debt overhang and the question is how this will be reduced. What fraction of the debt will be defaulted on, and what fraction will be inflated away?

The financial sector already got to offload a lot of its debt on the public finances through the bailouts of 2008-9. Now it's time for the public finances to offload their debt on...

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu Apr 29th, 2010 at 05:36:17 AM EST
[ Parent ]
El-Erian from Pimco thinks that the creditors will have to enter the picture at some point. The ridiculous 20% yields are pie-in-the-sky for whoever bought them.

Since none of this Greek debt was initially sold for more than 5.9% or 6.2%, I suspect the payout to creditors will not be much beyond that.

So, the idea is to prevent a Greek default by making the creditors whole, as long as by whole it means the creditors don't lose money. The idea that people will be paid at market rates from IMF funds is perhaps fantastical.

by Upstate NY on Thu Apr 29th, 2010 at 11:03:02 AM EST
[ Parent ]
would be for Greece to buy its debt on the secondary markets at current distressed prices.

The current >10% yields simply mean that holders of past bonds sold them for much less than their face value, thus providing the new buyers with a higher yield. That means that past buyers of the bond have already taken losses by selling at less than their official value.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Apr 29th, 2010 at 04:26:48 PM EST
[ Parent ]
Is this really the case?

Are we really talking about bailing out an indirect bet?

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 Thu Apr 29th, 2010 at 04:44:12 PM EST
[ Parent ]
Greece needs cash to roll over maturing debt, let alone buy back the rest of it.

Buying the debt in the secondary market is what the ECB should have quietly been doing since February.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu Apr 29th, 2010 at 05:09:19 PM EST
[ Parent ]
What should Spain do when the refinancing of its debt can not find any willing buyer?

Demand ECB to buy it. What Spain needs is a nice 10% inflation that will destroy household debts and rise the value of wages. Then tax land hard to keep property prices low and domestic demand high.

by kjr63 on Wed Apr 28th, 2010 at 04:40:29 PM EST
Yes, basically the ECb is the path I see..

regarding inflation, I would say if Spain needs a 10% then to balance trade and demand in Europe, Germany inflation should grow at 15%. I do not think is possible.

Spain inflation at 4% and germany at 7% is possible.. if only German would increase demand by eliminating unemployment with massive government demand.

Sadly I do not see that one neither.. so it will be a long period of very low growth and high unemployment..to get rid of household debts that's the way the masters of the consensus want it to be.

Other than that.. how do you keep aggegrate demand high by taxing land hard?

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 Thu Apr 29th, 2010 at 06:16:09 AM EST
[ Parent ]
Eurostat - Euroindicators - Provision of deficit and debt data for 2009 (pdf)
In 2009, the government deficit1 and government debt1 of both the euro area2 (EA16) and the EU27 increased compared with 2008, while GDP fell. In the euro area the government deficit to GDP ratio increased from 2.0% in 20083 to 6.3% in 2009, and in the EU27 from 2.3% to 6.8%. In the euro area the government debt to GDP ratio increased from 69.4% at the end of 2008 to 78.7% at the end of 2009, and in the EU27 from 61.6% to 73.6%.
...
In 2009 the largest government deficits in percentage of GDP were recorded by Ireland (-14.3%), Greece (-13.6%) the United Kingdom (-11.5%), Spain (-11.2%), Portugal (-9.4%), Latvia (-9.0%), Lithuania (-8.9%), Romania (-8.3%), France (-7.5%) and Poland (-7.1%). No Member State registered a government surplus in 2009. The lowest deficits were recorded by Sweden (-0.5%), Luxembourg (-0.7%) and Estonia (-1.7%). In all, 25 Member States recorded a worsening in their government balance relative to GDP in 2009 compared with 2008, and two (Estonia and Malta) an improvement.

At the end of 2009, the lowest ratios of government debt to GDP were recorded in Estonia (7.2%), Luxembourg (14.5%), Bulgaria (14.8%), Romania (23.7%), Lithuania (29.3%) and the Czech Republic (35.4%). Twelve Member States had government debt ratios higher than 60% of GDP in 2009: Italy (115.8%), Greece (115.1%), Belgium (96.7%), Hungary (78.3%), France (77.6%), Portugal (76.8%), Germany (73.2%), Malta (69.1%), the United Kingdom (68.1%), Austria (66.5%), Ireland (64.0%) and the Netherlands (60.9%).

In 2009, government expenditure in the euro area was equivalent to 50.7% of GDP and government revenue to 44.4%. The figures for the EU27 were 50.7% and 44.0% respectively. In both zones, the government expenditure ratio increased between 2008 and 2009, while the government revenue ratio decreased.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Thu Apr 29th, 2010 at 02:41:38 AM EST
One of the big Spanish business dailies, Expansion, had a piece up about how none of the Eurozone countries were in full compliance with the euro convergence criteria......

How would a decision to loosen up the convergence criteria be any different than the introduction the broad band on the ECM back in the late 1970s (80s?)?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Apr 29th, 2010 at 10:56:56 AM EST
[ Parent ]


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