Συντελεστές αδικίας στη φορολόγηση

του Πάσχου Μανδραβέλη

Καθημερινή
29 Φεβρουαρίου 2012

«Την αυτοτελή φορολόγηση των εισοδημάτων από ενοίκια με συντελεστή 20% εξετάζει» κοινή επιτροπή αποτελούμενη από στελέχη του υπουργείου Οικονομικών, της Ν.Δ. και του ΛΑΟΣ. Ετσι, θα έχουμε φορολογικό συντελεστή για τα εισοδήματα από μερίσματα 25%, από τόκους καταθέσεων 10%, από ενοίκια 20% και από την εργασία μέχρι 45%. Και να σκεφθεί κανείς ότι σκοπός αυτής της επιτροπής είναι η... απλοποίηση του φορολογικού συστήματος.

Ενα μεγάλο καλό έκανε η προηγούμενη κυβέρνηση του Γ. Παπανδρέου. Επιχείρησε να κάνει πράξη τη φορολογική δικαιοσύνη. Ενοποίησε όλα τα εισοδήματα σε μία κλίμακα, ώστε να φορολογούνται οι πολίτες όπως ακριβώς λέει το Σύνταγμα: «Οι Ελληνες πολίτες συνεισφέρουν χωρίς διακρίσεις στα δημόσια βάρη, ανάλογα με τις δυνάμεις τους». Δεν λέει πουθενά ότι συνεισφέρουν αναλόγως της πηγής των εισοδημάτων τους.

Τώρα, κοινή συναινέσει των τριών κομμάτων, το πολιτικό σύστημα άρχισε να μοιράζει δωράκια σε ομάδες πληθυσμού, και δη στους εύπορους. Ετσι, ένας εργαζόμενος που κερδίζει 100.000 τον χρόνο θα πληρώσει φόρο 40.000 περίπου ευρώ, ενώ κάποιος που εισπράττει ενοίκια 100.000 ευρώ ετησίως θα πληρώσει φόρο 20.000 ευρώ. Ωραία κίνητρα για δουλειά: η εργασία που φέρνει ανάπτυξη θα επιβαρύνεται διπλά από τις αποδόσεις των νεκρών επενδύσεων σε ντουβάρια.

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Ρουάντα και Ελλάδα

του Τάκη Μίχα

Protagon.gr
29 Φεβρουαρίου 2012

Τις παλιές καλές εποχές στην Ελλάδα έλεγαν: «Δεν είμαστε Ρουάντα». Σήμερα στην Ρουάντα λένε: «Προς Θεού μη γίνουμε Ελλάδα»! Αυτό δεν αποτελεί καθόλου υπερβολή. Ξεπερνώντας το μαρτυρικό της παρελθόν η Αφρικανική αυτή χώρα πού μέχρι πρόσφατα ήταν στον προθάλαμο της Κόλασης παρουσιάζει τα τελευταία έτη επιδόσεις σε καίριους οικονομικές δείκτες που είναι πολύ ανώτεροι από τους αντίστοιχους της Ελλάδας.

Η σύγκριση με την Ρουάντα δεν είναι τυχαία. Χρόνια τώρα στην Ελλάδα έχει αναπτυχθεί μία βιομηχανία παραπληροφόρησης που προσπαθεί να αποδώσει την υπανάπτυξη της χώρας στα «μαρτύρια της Ρωμιοσύνης» (Κατοχή, Εμφύλιος, Άλωση της Πόλης, κάθοδος των Δωριέων κλπ). Όμως όλα αυτά ωχριούν μπροστά στα μαρτύρια που πέρασε τα τελευταία έτη η Αφρικανική χώρα.H χώρα αυτή έγινε παγκοσμίως γνωστή από την γενοκτονία περίπου 700.000 Τούτσι το 1994.Με την μεσοαστική της τάξη εξοντωμένη και με την υποδομή της κατεστραμμένη από τον εμφύλιο κανείς δεν περίμενε ότι αυτή η Αφρικανική χώρα θα μπορούσε να αναστηθεί.

Κι όμως. Μέσα σε διάστημα 20 ετών η Ρουάντα όχι μόνο ανακάμπτει αλλά έχει αρχίσει να ξεπερνάει και την Ελλάδα σε καίριους οικονομικούς δείκτες. Έτσι όσον αφορά τον κρίσιμο δείκτη της ευκολίας λειτουργίας επιχειρήσεων, η Ρουάντα βρίσκεται στην θέση 45 της παγκόσμιας κατάταξης ενώ η Ελλάδα στην θέση 100! Για να στήσεις μία επιχείρηση στην Ρουάντα χρειάζεσαι 3 ημέρες 2 διαδικασίες ενώ και το κόστος ανέρχεται στο 4% του κεφαλαίου. Στην Ελλάδα χρειάζεσαι 10 ημέρες,10 διαδικασίες και το κόστος ανέρχεται στο 20% του κεφαλαίου (χωρίς τις «μίζες» φυσικά). Επίσης όσον αφορά την ανταγωνιστικότητα της οικονομίας της η Ρουάντα βρίσκεται στην θέση 70 στον δείκτη της παγκόσμιας ανταγωνιστικότητας ενώ η Ελλάδα στην θέση 90!

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Cigarette Taxes Can Help Cure Two of Greece’s Ills

by Peter Orszag

Bloomberg
February 29, 2012

Among all the trials and tribulations that define Greece these days, one that has received relatively little attention is its sky-high smoking rate. Greece’s is the highest in the Organization for Economic Cooperation and Development. Greece is an outlier also in that its smoking rate has risen significantly over the past decade.

The country’s fiscal crisis may therefore have a silver lining: It has forced the government to raise tobacco taxes modestly, and this already appears to be reducing smoking rates. Still, much more could be done.

In 2009, a shocking 40 percent of Greeks smoked. That is almost twice the OECD average of 22 percent. In France and Spain, the smoking rate was 26 percent. In the U.S., the rate is half that in Greece. The Greek rate was six percentage points higher than even Russia, the only other developed economy whose rate was more than 30 percent. In Greece, smoking rates exceeded 30 percent even for medical students, a study by Constantine Vardavas and Anthony Kafatos of the University of Crete found.

Perhaps even more troubling is that, in the past decade, the share of adult Greeks who smoke rose by almost 6 percent. Over that period, in the OECD as a whole, smoking prevalence declined by 18 percent. The only other developed country that experienced an increase in smoking was the Czech Republic -- but Greece’s rise was larger.

The health effects are predictable. Data from the International Agency for Research on Cancer show an age-adjusted death rate from lung cancer of 48 per 100,000 Greek males. In the U.K., that rate is 33 percent lower. In France and the U.S., it’s 20 percent lower than in Greece.

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Ανατολή της Δύσης ή δύση της Ανατολής;

του Θανάση Διαμαντόπουλου

Τα Νέα
28 Φεβρουαρίου 2012

Σε όλα τα χρόνια της Μεταπολίτευσης, στο εσωτερικό καθενός εκ των δύο πυλώνων του δικομματισμού συνυπήρχαν πάντα στοιχεία εξαιρετικά ετερόκλητα: εκσυγχρονιστές και λαϊκιστές, μεταρρυθμιστές και αντιμεταρρυθμιστές, δυτικόφιλοι που αναζητούσαν τις ιδεολογικές τους ρίζες στον Αδ. Κοραή και οπαδοί της καθ' ημάς Ανατολής εκφραζόμενοι από το «κρείττον βασιλεύον Τούρκου φακιόλιον ή καλύπτραν λατινικήν». Ο εσωκομματικός ανταγωνισμός αυτών των αντίθετων προσανατολισμών ήταν παράγοντας που καθιστούσε τα δύο πολυσυλλεκτικά κόμματα ανίκανα για οποιαδήποτε συνεκτική πολιτική δράση, με αποτέλεσμα να οδηγούνται στην απραξία (σημαντική αιτία της σημερινής πραγματικότητας).

Οι πρόσφατες, όμως, δραματικές εξελίξεις και οι ευρύτερες πολώσεις που δημιούργησαν τα διαδοχικά Μνημόνια, καθώς και η εξέλιξη της στάσης απέναντί τους των κομμάτων εξουσίας, φαίνεται πως θα οδηγήσουν σε πλήρη αναπροσδιορισμό του εθνικού κομματικού τοπίου: η σύγκρουση δυτικόφιλων και αντιδυτικών στοιχείων πιθανότατα θα πάψει να τέμνει εγκάρσια τις πολιτικές δυνάμεις του τόπου και θα καταστεί η βάση της κομματικής αντιπαράθεσης. (Αλλωστε η σύγκρουση αυτή υπήρξε το ιδεολογικό υπόστρωμα κάθε μείζονος πολιτικής ή πολιτισμικής διαίρεσης στη διαχρονικά «δικέφαλη» χώρα μας. Υφίστατο ήδη στο ύστερο Βυζάντιο, επίσης στα χρόνια του πρώτου ελληνικού διαφωτισμού και κυρίως κατά, αλλά και μετά, την έκρηξη του εθνικού διχασμού το 1915-16).

Με τα νέα δεδομένα λοιπόν, η πρόσφατα, ανεπαρκώς και αυτοαναιρετικά έστω, «μεταμεληθείσα» «νέα» Νέα Δημοκρατία και το εδώ και καιρό ανανήψαν - από το ρήμα ανά - νήφω που σημαίνει ξαναγίνομαι νηφάλιος, ξαναέρχομαι στα συγκαλά μου - λοβερδοβενιζέλειο ΠΑΣΟΚ συγκροτούν δυνάμει, και παρά την τεχνητή υπερδιόγκωση των διαφορών τους, τις δύο πτέρυγες της φιλοδυτικής παράταξης. Αυτό, δε, ισχύει έστω και αν η πολιτική και κυβερνητική σύγκλισή τους δυσκολευτεί στο ορατό μέλλον από διάφορους ανασταλτικούς παράγοντες (όπως είναι, για παράδειγμα, το βάρος του παρελθόντος, το αντιστασιακό αντάρτικο των επιβιωνόντων στους κόλπους τους νεαντερτάλειων στοιχείων, ο φόβος του πολιτικού κόστους, η διαμάχη ως προς τον επιμερισμό των ευθυνών, η παρακμή του παραδοσιακού δικομματισμού που δυσχεραίνει την κομματική πειθαρχία κοκ).

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Who Lost Greece?

by Jean Pisani-Ferry

Project Syndicate
February 28, 2012

The blame game in Europe has not yet begun. An agreement between Greece and its private creditors and public lenders will enable it to meet its next debt repayment deadline of March 20. The Europeans should be commended for a significant step in the direction of realism. Private creditors have accepted a haircut of more than 50% on their claims and a lowering of interest rates, bringing the total debt relief to more than two-thirds.

But, while a solution was found in extremis, many people believe that it will merely postpone the day of reckoning,& as Greece will not implement the promised austerity, and will end up either deciding to exit the eurozone or being pushed out following an eventual default.

Even before the latest deal, political leaders in the Netherlands and Finland, and some in Germany, were wondering aloud why Greece should remain in the euro. In Athens, exasperation has reached new heights, and the bitterness of the disputes has started to echo dangerously the rabid disputes over German reparations of the 1920’s.

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EU Leaders to Meet On Greece, Growth

Wall Street Journal
February 29, 2012

European leaders and finance ministers will meet Thursday and Friday in Brussels to finalize the second Greek bailout package and discuss measures to promote long-term growth, but there will be no decision on boosting the euro-zone rescue fund, EU officials said.

In a meeting that is likely to have "less drama" than recent gatherings, according to European Commission President José Manuel Barroso, the leaders are likely to focus on the way forward but avoid the key question of enlarging firewalls protecting against the sovereign-debt crisis. That discussion may take place later in March.

European Union heads of government will kick off talks on a set of economic reforms and steps to boost growth and jobs, as well as on recent developments in Arab countries.

The leaders are expected to give European Council President Herman Van Rompuy a nod for a fresh term running through the end of 2014. He is also set to be elected to chair the summits of euro-zone heads of government.

"On Greece there's been real progress in the last couple of weeks," Mr. Barroso said, adding that the risk of a credit crunch has been reduced by the actions of the European Central Bank. "One of the key issues is one of confidence, of trust...that is why I want discussion of growth to be as concrete as possible."

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Building the Modern Acropolis: Greek Entrepreneurs

by Elmira Bayrasli

Forbes
February 27, 2012

Encased in scaffolding and surrounded by construction equipment, the Acropolis unwittingly reflects today’s crisis-ridden Greece rather than the majestic one of ancient time. Its partners in the European Union are propping up the Southeast European country that is otherwise ready to crumble under debt and austerity. “Will it work?” is the question most Greeks ask, except those who are busy building their country’s self-renewing, modern monument: entrepreneurship.

Entrepreneurship, many say, is what will pull Greece out of its current financial crisis and back onto the road of economic growth. As I spent time in Athens last week for Entrepreneur Week Greece, I wondered whether it would work in time. While Greeks have been entrepreneurs since Euripides and Aristotle roamed the country’s marble roads and among the most successful at the start-up around the world (including my hero Arianna Huffington), the pace at which the country is innovating – and more importantly, driving in investments, may not be fast enough.

Entrepreneur Week is a U.S.-born initiative founded by Gary Whitehill in 2009, just after the 2008 Wall Street meltdown. It was initially focused exclusively on New York. “We started New York Entrepreneur Week to create a platform to promote entrepreneurship holistically, by bringing together and creating an overlapping umbrella for all of the stakeholders in the community, the non-profits, and the city and the state organizations,” Whitehill told a Boston website in 2010. Entrepreneur Week Greece was put together with the same idea – in a more urgent manner.

The week-long event came together in 20 days, with the cooperation of the Hellenic Startup Association and CoLab, a Y-combinator-like incubator that houses aspiring innovators and connects them to mentors and sources of capital. They are well-run and solid organizations, led by enthusiastic and sharp minds, that recognize the burning need to not only jumpstart excitement and support around start-ups but that see the importance of enticing Greek and foreign investors to bet on the Southeast European country of 11 million and pushing the Greek government to make it easier and more attractive for Greek youth to launch enterprises.

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A Euro Sabbatical

by Hans-Werner Sinn

Project Syndicate
February 27, 2012

Under substantial external pressure, the eurozone’s crisis-hit countries are, at long last, bringing themselves to make painful cuts in their government budgets. Salaries are being slashed and public employees sacked to reduce new borrowing to a tolerable level.

And yet, competitiveness in Greece and Portugal, in particular, is not improving. The latest Eurostat figures on the evolution of the price index for self-produced goods (GDP deflator) show no tendency whatsoever in the crisis-stricken countries towards real devaluation. But real devaluation, achieved by lowering prices vis-à-vis their eurozone competitors, is the only way to re-establish these countries’ competitiveness. A reduction in unit labor costs can also increase competitiveness only to the extent that it actually results in price reductions.

After all, it was price inflation in the crisis countries, fueled by massive inflows of cheap credit following the introduction of the euro, that resulted in their loss of competitiveness, ballooning current-account deficits, and accumulation of enormous foreign debt. Now that capital markets are no longer willing to finance these deficits, prices should be going into reverse, but this, obviously, is not happening.

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Greek Bailout Gets Alarm Signal From German Press

by David Henry

Bloomberg
February 27, 2012

Only hours before the German parliament votes on Greece's second bailout package -- this time for 130 billion euros ($174 billion) -- it's clear that the local media and academia are firmly opposed to more money for the Hellenic state. While the rescue is almost certain to be approved with Social Democrat and Green support, it will have a negative impact on the governing coalition and among the electorate.

The mass-circulation Bild newspaper made its appeal to parliamentarians with the headline ``Stop! Don't go any further along this wrong path.'' Hans-Werner Sinn of the Munich-based Ifo Institute said a Greek bankruptcy would cost Germany alone 100 billion euros ($134 billion). If the euro countries were to provide comparable aid to other crisis nations in the region, it would cost 6.2 trillion euros, which would lead to the end of the euro. Greece should voluntarily leave the euro zone, Bild said. A whopping 80 percent of Germans opposed another Greek bailout, according to a Bild survey published yesterday.

The Frankfurter Allgemeine Zeitung warned that ``sooner or later (probably sooner), Greece will most likely give up the austerity policy forced on it by its donors'' as the Greek government falls apart. On the same front page, the newspaper ran a story about Greek parliamentarians transferring their private assets abroad while asking for money from their euro neighbors, namely Germany. Even a German government minister -- Interior Minister Hans-Peter Friedrich -- has now advised Greece to leave the euro, the FAZ reported. For consistency, the conservative broadsheet ran a sidebar article about a report that recommends reduced financial support for eastern Germany. Charity begins at home; and so does austerity.

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G-20 to Euro Zone: Sort It Out

by Matina Stevis

Wall Street Journal
February 27, 2012

Delegates from the world’s 20 biggest economies, policy wonks and financiers all brought their diverse and at-times divergent agendas to Mexico City at the weekend, but one common theme emerged: they are fed up with the euro-zone crisis, and the long and bumpy road to fixing it.

Euro-zone officials, including top German, French, Italian and Spanish officials as well as the European Central Bank boss and the European Union economics chief, faced a barrage of questions about beefing up their own rescue fund from their non-European counterparts, who won’t put up any extra cash themselves until there’s progress on expanding the so-called European “firewall.”

The European officials sought some credit for the progress they claim to have made, with the European Union Commissioner for Economics and Monetary Affairs, Olli Rehn, asking for “sympathy and support.” They got little of that in response.

“The Europeans have been talking for months to erect the necessary firewalls but can’t come to an agreement among themselves… If they can’t clean up their act, they can’t expect money from emerging economies where many countries still deal with acute poverty issues,” said one official from a G-20 nation.

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Eurozone countries must not be forced to meet deficit targets

by Jean Pisani-Ferry

Financial Times
February 27, 2012

Last year, 13 eurozone countries surpassed the deficit to gross domestic product ratio of three per cent. The latest forecasts by the European Commission suggest the region is slipping into a mild recession this year. As a consequence, in the absence of further policy measures, most of these countries risk missing their budgetary targets. This especially applies to Spain, where last year’s deficit was eight per cent of GDP. The Commission expects its output to decline by one per cent this year (not a particularly pessimistic forecast) yet the country is still supposed to reach the three per cent deficit threshold by next year. Many other countries are in the same boat.

The dilemma for the EU – especially for the Commission whose surveillance role is being enhanced – is how to respond to this situation. Should Olli Rehn, the Commission’s vice president, push countries to take further immediate actions? Or should he recognise that these targets are out of reach and put emphasis on efforts rather than outcomes? From a structural point of view, the preferred option is clearly the latter. However, the European fiscal framework has lost a lot of credibility. He may wish to use the opportunity to demonstrate his ability to enforce discipline.

Economic history teaches us that financial crises have long lasting, if not permanent, negative effects . Most European countries have already lost several percentage points of GDP and it seems wise to expect the second recession to do the same. Mr Rehn has good reasons to require action. However, demanding adherence to the 2013 targets has two major drawbacks.

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Merkel Takes Heat on Greece

Wall Street Journal
February 27, 2012

Chancellor Angela Merkel's effort to rally the German people behind her strategy for saving Greece and the euro suffered a blow over the weekend after a senior member of her government said Athens should be encouraged to leave the currency bloc.

"The chances that Greece can renew itself and become more competitive are surely greater outside the currency union than within it," Interior Minister Hans-Peter Friedrich said in an interview with Der Spiegel, a German weekly. Mr. Friedrich, who belongs to the Bavarian sister party of Ms. Merkel's Christian Democrats, added that Athens shouldn't be forced to leave, but rather given incentives "that they can't refuse."

Germany's Parliament is expected to approve Greece's latest bailout on Monday by a wide margin with the backing of major opposition parties. But with a solid majority of Germans opposed to the package and growing opposition in her own coalition, Ms. Merkel could find it difficult to secure continued support down the line, especially if Athens fails to follow through on budget cuts and structural overhauls it has promised.

German opposition to helping Greece isn't new. Mr. Friedrich is the first minister to publicly break ranks with the chancellor over the issue, however, reflecting the growing dissension she faces over the financial risks Berlin is assuming. More significantly, Mr. Friedrich has lent an influential voice to the idea that Athens can be nudged out of the euro zone without triggering the currency's collapse.

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G-20 Defers Move On Aid for Europe

Wall Street Journal
February 27, 2012

Officials from the world's leading economies deferred for months key decisions on international aid for Europe as they awaited more euro-zone action to fight the Continent's debt crisis.

Finance ministers and central bankers from the Group of 20 advanced and developing economies, after a two-day meeting here, indicated they anticipate an agreement to expand Europe's rescue fund next month.

That move "will provide an essential input in our ongoing consideration to mobilize resources" to the International Monetary Fund, the G-20 officials said in a joint statement Sunday.

The lack of significant progress effectively punts further discussion of new international support until the G-20 ministers' next gathering in April. Officials hoped that could lead to a final, confidence-boosting agreement at a summit of world leaders in June.

G-20 officials acknowledged a long list of potential obstacles ahead. Greece must meet numerous conditions for its latest bailout within weeks. European officials recognized German reluctance to quickly raise the capacity of a euro-zone financial firewall—a rescue fund large enough to reassure markets that other troubled euro-zone economies will be able to manage their debts. The G-20 set that expansion as a condition for increasing IMF resources to support Europe. At the same time, officials noted that surging oil prices, partly due to tensions with Iran, threatened to depress a global recovery already weakened by European turmoil.

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Germany’s Crisis Role in Focus After G-20 Rebuff

Bloomberg
February 27, 2012

Germany was left to dig deeper to combat the euro-area debt crisis after the Group of 20 nations told Europe to come up with more financial firepower before they consider lending outside support.

The decision by G-20 officials to rebuff European calls for assistance in their crisis-fighting effort pending an increase in its own financial backstop puts the onus on Germany, already the biggest national contributor to bailouts, to overcome its resistance to doing more.

With a parliamentary vote on a second Greek aid package looming in Berlin today, Chancellor Angela Merkel’s government must now decide whether to back plans at a March 1-2 European Union summit to combine rescue funds and produce a potential firewall of 750 billion euros ($1 trillion).

Europe “doesn’t really need any outside money,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an e-mail. “It needs their own policy makers, especially Germany, to show leadership.”

Germany went in to the Mexico meetings of finance ministers and central bankers urging G-20 nations to find fresh money for the International Monetary Fund that could be channeled to defuse the euro-region crisis now in its third year. IMF chief Christine Lagarde, who attended the talks, said she wants to raise the Washington-based fund’s lending capacity by $500 billion to fend off “further shocks” to the global economy.

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ECB Loan Program May Set Euro Path

Wall Street Journal
February 27, 2012

The outcome on Wednesday of the European Central Bank's discount loan program for banks will likely determine whether the euro can build on last week's gains.

The common currency hit a three-month high against the dollar Friday, trading at $1.3487 after Greece's approval of a debt-bolstering bond swap and successful Italian bond auctions.

The ECB's first so-called long-term refinancing operation in December, where banks borrowed €489 billion in three-year loans at low interest rates, is widely credited with stabilizing financial markets. That bought time for Greece and its creditors to agree on a plan to restructure the country's debt, which boosted the euro last week.

Estimates of how much money euro-zone banks will borrow from the central bank this time range from €200 billion to up to €1 trillion. If loans total at least €400 billion, it would boost confidence in the Continent's banks and be positive for the euro, analysts say.

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What Ails Europe?

by Paul Krugman

New York Times
February 26, 2012

Things are terrible here, as unemployment soars past 13 percent. Things are even worse in Greece, Ireland, and arguably in Spain, and Europe as a whole appears to be sliding back into recession.

Why has Europe become the sick man of the world economy? Everyone knows the answer. Unfortunately, most of what people know isn’t true — and false stories about European woes are warping our economic discourse.

Read an opinion piece about Europe — or, all too often, a supposedly factual news report — and you’ll probably encounter one of two stories, which I think of as the Republican narrative and the German narrative. Neither story fits the facts.

The Republican story — it’s one of the central themes of Mitt Romney’s campaign — is that Europe is in trouble because it has done too much to help the poor and unlucky, that we’re watching the death throes of the welfare state. This story is, by the way, a perennial right-wing favorite: back in 1991, when Sweden was suffering from a banking crisis brought on by deregulation (sound familiar?), the Cato Institute published a triumphant report on how this proved the failure of the whole welfare state model.

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Europe Financial Firewall Will Stabilize Region

Bloomberg
February 27, 2012

Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington D.C., talks about the Group of 20 nations summit and the need for a European financial firewall. G20 nations rebuffed German-led calls to come to Europe’s rescue as it battles the region’s debt crisis, saying any decision on outside help hinges on the euro area delivering more financial firepower within two months. Kirkegaard speaks with Susan Li on Bloomberg Television's "First Up."



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Europe Gets Ready for Round 2 of Bank Loans

New York Times
February 26, 2012

Central bankers do not like anyone to see them sweat, much less panic. But last November the temperature was clearly rising inside the battleship-gray office tower in downtown Frankfurt that houses the European Central Bank.

European commercial banks were unable to raise money to lend to customers. Borrowing costs for Spain, Italy and Portugal were threatening to spin out of control, and Greece’s had risen to levels that would make a loan shark blush. Analysts were issuing reports predicting that Greece would leave the euro zone — if the currency union was lucky. The worst case was that the euro would disintegrate.

“The situation was deteriorating,” recalled one policy maker, who did not want to be named because internal central bank discussions are confidential. “Something had to be done.”

In the weeks that followed, the central bank’s governing council and its new president, Mario Draghi, succeeded in defusing the tension with a monetary policy tool that they will deploy again this week: unlimited three-year loans to commercial banks at the rock-bottom interest rate of 1 percent.

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Merkel faces difficult Greek vote in parliament

Reuters
February 26, 2012

The German parliament will almost certainly vote to endorse a new Greek bailout package on Monday, but Chancellor Angela Merkel may be forced to rely on opposition support to overcome a determined band of rebels in her coalition.

At least a dozen members of parliament in Merkel's center-right coalition said they would vote against the 130 billion-euro ($175 billion) rescue package. If the number of rebels rises to at least 20, the measure will pass only with opposition support.

That would be a humiliating defeat for Merkel, which analysts and opposition leaders said would raise doubts over whether her coalition can survive.

Merkel's allies are confident they have enough votes for a majority. The opposition Social Democrats and Greens will vote for it.

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European Leaders Focus on Boosting $672 Billion Firewall After G-20 Rebuff

Bloomberg
February 27, 2012

European leaders will shift their focus this week from a Greek bailout to the prospect of bolstering the region’s firewall against debt-crisis contagion as they ready for their latest summit.

After lawmakers in Germany and Finland vote on approving the second Greek rescue package today and Feb. 29, European Union heads of government will turn to their March 1-2 summit in Brussels. Leaders of the 17-member monetary union have said they’ll decide in March whether to lift a 500 billion-euro ($672 billion) limit to bailout funding.

As the European Central Bank prepares a second round of cash lending to help shore up the region’s banks, policy makers are focused on preventing a Greek collapse in order to take advantage of signs of an improved global economy.

The latest Greek bailout “gives the opportunity of euro- zone leaders to put a better, more organized and larger firewall in place,” William Rhodes, chief executive officer of William R. Rhodes Global Advisors and a former Citigroup Inc. executive, said in a Feb. 24 Bloomberg Radio interview.

Chancellor Angela Merkel’s government has resisted proposals to increase bailout funding by topping up the 500- billion-euro European Stability Mechanism, the permanent fund scheduled to be set up this year. Euro leaders are considering diverting funds from the temporary bailout mechanism, the European Financial Stability Facility, to increase the region’s resources in fighting the crisis.

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Greece really needs a year to prepare for total default

by Wolfgang Münchau

Financial Times
February 26, 2012

It was a deal nobody believed in – including those who negotiated it. We are now going to go through the motions but Greece will default, one way or the other. The question is when and how.

Paul Krugman observed in his New York Times blog that Greece was trapped between an austerity programme that forever aggravates the debt problem, and a default that will not be feasible until the country reaches a primary surplus – a budget surplus after payment of interest on debt. This is not expected to happen until 2013. As a result, he wrote, the Greek political establishment would have no choice but to wait and see.

This is right, but it could do more: it could prepare for a total external default next year. That means it would need to persist with austerity this year simply to bring the primary deficit close to zero. And it would also have to enact some structural reforms to reap the benefits a default could bring.

On the heroic assumption that the agreed private sector participation stabilised Greek debt at 120.5 per cent of gross domestic product, as targeted by Tuesday’s agreement, a default would invariably mean “official sector privatisation”. It would have to include the loans by the European Financial Stability Facility and the bonds held by the European Central Bank and various national central banks. Greece might also default on some or most of its remaining private sector bonds. By default I mean a renunciation of most of its foreign, but not necessarily domestic, debt. The goal would be reduce the total debt-to-GDP ratio to 60 per cent.

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Greece sets bank recap via common shares with restrictions

Reuters
February 26, 2012

Greece plans to recapitalize its struggling banks after a bond swap largely through common shares with restricted voting rights and convertible bonds, according to a draft law submitted to parliament over the weekend.

The banks are expected to require recapitalization because of impaired loans and losses from a bond swap that Greece launched on Friday to ease its debt burden.

About 50 billion euros ($67.31 billion) have been set aside to recapitalize through Greek banks after the bond exchange.

According to the draft law expected to be voted by parliament on Tuesday, the banks will be recapitalized through rights issues which will largely be covered by the Greek bailout fund, the Hellenic Financial Stability Fund.

"The voting rights of the new shares will be limited to strategic issues ... like mergers and asset sales," said the draft law.

Private investors were worried that banks would fall under state control if they were recapitalized via common voting shares, but the inclusion of restricted voting rights signals that the banks would remain privately-run.

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G20 meeting begins with eurozone ‘firewall’ warnings

Financial Times
February 26, 2012

A meeting of G20 finance ministers began in Mexico City on Saturday with a series of warnings that Europe must do more to build its “firewall” against financial contagion.

“We still have to build the mother of all firewalls,” said Angel Gurría, secretary-general of the Organisation for Economic Co-operation and Development. “The more credible it is and the bigger it is, the less likelihood we will have to use it.”

G20 countries are demanding that eurozone members increase the size of the European Stability Mechanism, the permanent fund that would support Italy or Spain if they became unable to borrow, before they will consider increased resources for the International Monetary Fund.

As a result, expectations for a big policy outcome at this G20 meeting are close to zero, with some finance ministers staying on the ground in Mexico City for less than 24 hours. Mr Gurría said that creation of Europe’s firewall was already six months or a year too late.

“Every day the cost of the uncertainty and the cost of indecision is enormous,” he said. “I’d say Europe is making quite good progress in convincing the world that they are not going to allow a catastrophic financial failure on the continent,” said Tim Geithner, the US Treasury secretary. “Now, they are not done.”

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Mantega calls for more eurozone flexibility

Financial Times
February 26, 2012

Brazil’s finance minister has strongly questioned whether some European Union countries should remain in the region’s single currency.

In an interview with the Financial Times, Guido Mantega suggested that the rigidity imposed by the euro was not appropriate for all of its current members, some of which should probably exit once the crisis abates.

“I don’t know if all the members of the European Union really fit in the European Union…it has to be rethought after we overcome today’s economic problems,” he said. “Then it is possible that some of the countries should exit because it would be more convenient for them.”

His striking comments were made on the eve of this weekend’s G20 meeting of finance ministers and central bank governors.

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The Greek Economic Drama: An Almost Perfect Austrian Application

by Mike G. Tsionas

Athens University of Economics and Business
Department of Economics
January 2012

Possibly due to lack of reliable data an analysis of the Greek economic crisis in the context of the eurozone, along the lines of the Austrian theory, is not available. In this paper we employ the most recent data on money, credit, industrial production and productivity to show that the Greek drama is an almost ideal application of the Austrian ideas. Long term money and credit expansion along with expansion in the middle of the recession up to end of 2010, have distorted substantially the time structure of production resulting in low profitability, employment and output, high public deficits, and explosion of public debts.

Read the Paper

Draghi must be wary of Ltro elixir’s power

by Ralph Atkins

Financial Times
February 26, 2012

A trillion euros? Half as much – or less? The level of demand in the European Central Bank’s second offer of cheap, unlimited three-year loans to eurozone banks this week will be watched with trepidation by some in Frankfurt. It could shape the presidency of Mario Draghi and his relationship with Germany and its Bundesbank.

Like an elixir discovered by an alchemist, the three-year longer-term refinancing operations have produced eye-catching results for Mr Draghi, who only took office in November. The first, in December, saw the ECB providing €489bn and marked a turning point for the eurozone.

At the time, financial market tensions meant Europe’s monetary union was perilously close to a banking catastrophe. But the three-year Ltro – pronounced, increasingly, “L-troh” – bought time by soothing financial market nerves and boosting economic confidence.

Demand on Wednesday will also be strong. This time, there are rules making it easier for smaller banks to use their loan books as collateral when tapping the ECB, which could, in theory, increase demand by as much as €200bn.

The risk, however, is that too high a sum will shift Mr Draghi’s reputation from the central banker who conjured up breathing space for the eurozone to the central banker who simply spoilt the bankers.

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Germans volunteer for Greek tax mission

Financial Times
February 26, 2012

German tax collection experts have volunteered to go to Greece to help combat widespread evasion, in a move that risks reigniting tensions between Berlin and Athens.

Germany’s federal states have recruited about 160 experts to serve under a European Union and International Monetary Fund initiative to improve tax administration in Greece.

A Greek government official reacted positively to the plan: “Such assistance with upgrading the quality and efficiency of the Greek public administration is very welcome.”

But the arrival of the German officials in Athens could reawaken anti-German sentiment that was triggered by a plan last month to appoint a “budget commissioner” to oversee Greece’s finances. A front-page headline in ProtoThema, an Athens tabloid, on Sunday described the volunteers as “an assault force of German tax collectors”.

A senior tax official said: “We don’t need outside help, we need better computer systems and more co-operation with other government departments.”

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Greeks today might ask: What would Pericles do?

by James Romm

Los Angeles Times
February 26, 2012

Greek opinion is divided over the government's plan to offer the Parthenon and other heritage sites as film and photo backdrops to raise revenue during its current economic crisis. "This is sacrilege!" one Greek tour guide protested. But others thought that, humbling though the measure might be, it was at least better than begging for foreign bailouts.

For some Greeks, the debate may have evoked a sense of déjà vu. Pericles, the great Athenian statesman, also proposed raiding the Parthenon to meet a shortfall, nearly 2,500 years ago — challenging the boundaries not just of good taste but of religious taboo.

The Parthenon has always been a symbol of Athenian pride, but when first built in the mid-5th century BC, it was also a monument to Athenian wealth. Within it was housed the state treasury and a hoard of gold and silver vessels, the sacred property of Athena. A colossal statue of that goddess, decked with ivory skin and gold-leaf armor, dazzled visitors with a display of Athens' massive fiscal surplus.

To exploit such holy relics was, ordinarily, a heinous crime, and "temple robber" was about the worst thing an ancient Greek could be called. Yet financial crises have a way of redefining what is sacred and what is profane, as modern Europe has learned. So too do long wars, which often lead to financial crises — as did the war Athens and Sparta began in 431 BC, the heyday of Pericles.

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Germans overwhelmingly oppose Greek bailout

Reuters
February 26, 2012

Germans overwhelmingly oppose further aid for Greece, according to opinion poll released on Sunday, one day ahead of a vote in parliament on a new Greek bailout package where Chancellor Angela Merkel may be forced to rely on opposition support.

The poll by the Emnid Institute in Bild am Sonntag newspaper found 62 percent oppose a new 130 billion ($175 billion) rescue package while 33 percent are in favor. A similar Emnid poll in September found 53 percent opposed and 43 percent in favor.

Merkel's centre-right coalition faces a testing vote in parliament on Monday when at least a dozen deputies are expected vote against the measure. It should still pass with ease because opposition parties will vote for it.

But the prospect of the ruling bloc failing to win a majority on its own would be a humiliating setback for Merkel, with some analysts and opposition leaders warning it could endanger her coalition.

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Nothing to fear but the lack of fear itself

Economist
February 26, 2012

What to read into the following? At an event for CFOs and finance directors in London this week, I asked the audience whether Greece would end up leaving the euro zone. Every single hand went up. Asked whether more countries than Greece would leave, roughly two-thirds of the audience agreed they would.

Coming a week after an agreement on a second international bail-out for Greece, such certainty that the country would have to exit the euro was striking. It may be that an audience in London, albeit a cosmopolitan one, is prone to misjudge the willingness of the euro-zone creditors to keep lending money to Greece even if the country’s programme goes off-track again. But I still think their judgment is right, for three reasons.

First, the demands being made of Greece will be almost impossible to meet: they will eventually need more money or some kind of forbearance. Wolfgang Schäuble, Germany's finance minister, and Jean-Claude Juncker, Luxembourg’s prime minister, have both suggested in recent days that a third bail-out may well be needed.

Second, there is a finite amount of times that creditor nations can justify bail-outs to their taxpayers, and the poisonous manner in which the latest package was agreed suggests this point may already have been reached. There is a good chance that approving extra money is becoming politically impossible. The Greeks themselves may well give up on the whole process, too.

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G20 turns up pressure on Germany

Financial Times
February 26, 2012

Finance ministers from the world’s largest economies ratcheted up the pressure on Germany to increase the size of the eurozone’s €500bn rescue fund, saying the move would be “essential” to a decision by non-European countries to raise more resources for the International Monetary Fund.

Some European officials had hoped the eurozone “firewall”, called the European Stability Mechanism, could be increased to €750bn at the same time the IMF got commitments to raise its firepower against contagion to about $1,000bn.

But a communiqué issued at the end of a meeting of the Group of 20 ministers in Mexico City – despite efforts by European Union officials to water down the language – made clear that IMF shareholders, including the US and the UK, were unwilling to move simultaneously with the eurozone.

“There is broad agreement that the IMF cannot substitute for the absence of a stronger European firewall and that the IMF cannot move forward without more clarity on Europe’s own plans,” said Timothy Geithner, the US Treasury secretary.

The political pressure puts Berlin in an awkward position ahead of a vote on Monday in the Bundestag to approve a €130bn Greek bail-out.

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G-20 Debates Increased IMF Aid for Europe

Wall Street Journal
February 26, 2012

Officials from the world's leading economies debated the next steps to fight the European debt crisis, including conditions for boosting resources at the International Monetary Fund, but appeared set to defer key decisions until late March or April.

Finance ministers and central bankers from the Group of 20 advanced and developing economies, who started meeting here Saturday, kept their focus on the euro-zone turmoil as the biggest risk hanging over the global economy.

Non-European members of the G-20 are trying to push Europe to boost its own bailout fund before they deliver more IMF resources.

"Everything depends on whether the Europeans can push up their own rescue funds," one of the officials said. "The G-20 believes there have been major delays in Europe and expects a final decision on the firewall in March."

Many G-20 members want Europe to expand its rescue-fund capacity to at least €750 billion ($1.01 trillion), beyond the €500 billion cap planned for a fund coming online this summer.

While European officials had sought a deal on expanding that firewall at a summit next Thursday and Friday, resistance from Germany likely will delay any final moves at least until late March.

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Στρατηγική ανάπτυξης για την Ελλάδα

του Timothy Garton Ash

Το Βήμα
26 Φεβρουαρίου 2012

Ας είμαστε ειλικρινείς: αν αυτή η ευρωζώνη δεν υπήρχε, κανείς δεν θα την εφεύρισκε σήμερα. Η λέξη-κλειδί είναι το «αυτή». Μια μικρότερη ευρωζώνη με πιο συμβατές, κυρίως βορειοευρωπαϊκές οικονομίες - μια «βορειοζώνη» -, θα είχε αντιμετωπίσει, παρά τα «σχεδιαστικά λάθη» του Μάαστριχτ, την κρίση του δυτικού καπιταλισμού που ξέσπασε το 2008. Εναλλακτικά, μια ευρωζώνη του σημερινού μεγέθους θα μπορούσε να είχε ακολουθήσει μια πολιτική ένωση, εφόσον και όταν αυτό θα αποδεικνυόταν δυνατό.

Κάτι τέτοιο θα απαιτούσε έναν βαθμό σύμπνοιας ανάμεσα σε Γερμανούς και Ελληνες αντίστοιχο με εκείνον ανάμεσα στους κατοίκους της Νέας Αγγλίας και της Αλαμπάμα στις ΗΠΑ. Παραμένουν πολύ διαφορετικοί, δέχονται όμως τη μεγάλης κλίμακας αναδιανομή των χρημάτων των φορολογουμένων, είναι έτοιμοι και ικανοί να μετακομίσουν και να εργαστούν είτε στο ένα μέρος είτε στο άλλο, ενώ μοιράζονται νομοθεσία, προϋπολογισμό, μέσα ενημέρωσης και δημόσια σφαίρα.

Αυτό επιμένουν ότι κατόρθωσαν οι ηγέτες της ευρωζώνης την περασμένη εβδομάδα. Οι προσπάθειές τους πρέπει να αναγνωριστούν. Εργάστηκαν σκληρά για να τετραγωνίσουν πολλούς κύκλους. Είναι εύκολο να ασκούμε κριτική απ' έξω. Δεν το κατόρθωσαν όμως ακόμη.

Προς το παρόν η πλειονότητα των Ελλήνων επιθυμεί να παραμείνει στο ευρώ. Αλλά δυσκολεύομαι να πιστέψω ότι ο λαός της Ελλάδας θα συνεχίσει να δέχεται επί χρόνια τις ακραίες θυσίες που απαιτούνται από αυτόν μόνο και μόνο με το επιχείρημα ότι «η αποχώρηση από το ευρώ θα ήταν χειρότερη». Οι προσωπικές ιστορίες των Ελλήνων ήδη σπαράζουν την καρδιά. Ο δημοσιογράφος, ο δάσκαλος, ο δημόσιος υπάλληλος στην ουρά για συσσίτιο. Οι φοιτητές μιας «χαμένης γενιάς» έχουν εγκαταλείψει τη χώρα ή πρόκειται να το κάνουν. Η ανεργία στο 21% και με αυξητική πορεία. Λουκέτο σε 150.000 επιχειρήσεις. Ο κατώτατος μισθός κομμένος κατά το ένα πέμπτο και πλέον. Χιλιάδες κοιμούνται στους δρόμους. Αστεγοι το βράδυ, διαδηλωτές τη μέρα. Ο ογδοντάρης Μίκης Θεοδωράκης - αγαπημένος των γερμανών τουριστών - κάλεσε σε «εξέγερση». Και η κυβέρνηση οφείλει να εφαρμόσει ένα ακόμη πακέτο λιτότητας την ερχόμενη εβδομάδα προκειμένου να πάρει τα 130 δισ. ευρώ της διάσωσης.

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‘Greece 2: Revenge!’ – the plot thickens

by John Dizard

Financial Times
February 26, 2012

Now that “Greece”, this season’s big heist movie, is in the can and on the way to the distributor, the producers are sitting around the pool on the exclusive French Caribbean island of St. Barthélemy, working on the sequel, which starts shooting this summer.

As usual, the problem is how to get the audience back for more of the same: meetings convening and breaking up, riots, opposing talking heads, stock shots of the Parthenon. The answer, I believe, is to leak out that the franchise is still fresh, with great plot twists. Also, several lead characters (civil service unions, state enterprises, and pensioners) from “Greece” face horrible fates in the sequel, including slow starvation.

The key to understanding the story arc of the sequel is the one real success of the negotiators for the private sector lenders to Greece: getting pari passu (equal status) treatment for the payments on their new paper with that held by the European Financial Stability Facility, the official lender of the euro group. The term of art is “the escrow account”.

When, as is likely, the Greek government fails the first major test of its commitments under the restructuring deal, the bondholders and EFSF can be paid, out of the same escrow account, by the same fiscal agent, even as cash for the state is cut.

This is what I’ve heard about the current screenplay for “Greece 2: Revenge!”: fast forward past the close of the current deal, to the setting of the date for Greece’s next parliamentary elections. There was hope among some of the current cabinet members, especially the Pasok (socialist party) people, that those could be put off till next year, perhaps even up to the final deadline of next October. Now that doesn’t look as likely, so let’s say that we get elections by late April, after the signatures on the papers have dried.

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Are Greeks the hardest workers in Europe?

BBC News
February 26, 2012

The eurozone crisis has sown divisions in the European family, and Greece in particular has often been singled out for criticism. Has Greece been living beyond its means? Are Greeks lazy? On this second point, the statistics tell a surprising story.

This week Greece is facing more spending cuts after agreeing to a deal of 130bn euros (£110bn, $175bn) to help it avoid bankruptcy.

But the statistics suggest the country has not lost its way due to laziness. If you look at the average annual hours worked by each worker, the Greeks seem very hard-working.

Figures from the Organisation for Economic Co-operation and Development (OECD) show that the average Greek worker toils away for 2,017 hours per year which is more than any other European country.

Out of the 34 members of the OECD, that is just two places behind the board leaders, South Korea.

On the other hand, the average German worker - normally thought of as the very epitome of industriousness - only manages 1,408 hours a year. Germany is 33rd out of 34 on the OECD list (or 24th out of 25 looking at the European countries alone).

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The Failing State of Greece

by Rachel Donadio

New York Times
February 25, 2012

The first time I visited Athens, the city was in flames. It was December 2008, and riots, set off after a policeman’s bullet killed a teenager, engulfed the city. For several terrifying days, the rule of law was tenuous at best.

On my second trip, for the national elections in October 2009 when the Socialists won, I went to the movies one night. As I sat in the elegant, neo-Classical-style theater, an usher checked to make sure I was in the correct assigned spot. The jarring contrast made me laugh. In that cinema, at least, the rules were rules.

Last week, I stood outside that theater — the Attikon, it was called — and reeled at the sight of its burned-out shell. It had been gutted by fire on Feb. 12, a wild night when marauding bands of arsonists with Molotov cocktails targeted shops and buildings, most of them historic, while just blocks away the Greek Parliament approved the latest package of austerity measures demanded by Greece’s troika of foreign lenders. The troika — the European Commission, the European Central Bank and the International Monetary Fund — won’t give 130 billion euros in new loans without pain. The Greeks won’t accept the pain without anger.

As more than 6,000 policemen stood guard, these roving bands — several dozen criminals, by official estimates — infiltrated a vast, largely peaceful demonstration of more than 80,000 people and pushed the city into mayhem. Once again, Athens burned. Once again, the rule of law had foundered. But how badly? And how long before it would again?

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Lead Negotiator on Greek-Debt Deal Is Optimistic

Wall Street Journal
February 25, 2012

A lead negotiator for a historic Greek-debt deal is optimistic that a voluntary swap of more than €200 billion ($270 billion) in government bonds will succeed as investors will seek to avoid destabilizing the global financial system.

"Destabilizing the euro zone and potentially destabilizing the global markets would not likely be in the interest of too many investors," Charles Dallara, head of the Institute of International Finance, said in an interview Friday. The IIF is an industry group representing more than 450 financial institutions.

Mr. Dallara, the chief negotiator on behalf of the majority of Greece's private-sector creditors, said the alternative to a voluntary Greek-debt restructuring would "damage the European Central Bank's balance sheet," pointing to both the ECB's €45 billion in direct Greek-government bondholdings, and the Greek bonds it holds as collateral.

He said it would also potentially create "unmanageable strains" in the euro zone, spark broader contagion into Italy, Spain, Portugal and Ireland, as well as other countries, and fuel an "explosion of unrest in Greece."

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Under Zeus' gaze, austerity-hit Greeks queue for potatoes

Reuters
February 25, 2012

Struggling to cope with austerity, hundreds of Greeks in the town of Katerini at the foot of Mount Olympus have turned to a cheap way to do groceries: ordering potatoes on the Internet and picking them up in a parking lot.

As dawn broke on a cloudless Saturday, buyers patiently gathered to buy directly from growers at less than half the supermarket shelf price - the unemployed who struggle to make ends meet, the retirees whose pensions have been cut by the cost-saving measures and even well-heeled lawyers and women in fur.

The idea to cut out profiteering middlemen, started by a local activist group in Katerini, northern Greece, has led several other towns to seek advice on emulating the action.

"Every penny counts," said Kyriaki Kotropoulou, a 41-year old jobless mother of three, as she stood in line to pick up five bags of potatoes, each containing 10 kg (22 pounds) of the produce at 25 euro cents ($0.34) apiece.

Kotropoulou was a temporary worker at the local municipality but her contract was recently terminated as part of spending cuts demanded by Greece's euro zone partners who approved a 130 billion euro bailout this week.

"We no longer buy any new clothes, we no longer go out for coffee or dinner. Day in, day out, my only concern is how to feed my children and my family," she said.

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German tax collectors volunteer for duty in Greece

Reuters
February 25, 2012

More than 160 German tax collectors have volunteered for possible assignments in Greece to help the struggling Mediterranean country gather tax more efficiently, the Finance Ministry in Berlin said on Saturday.

The offer risks fuelling resentment among Greeks who have already reacted angrily to earlier German calls for the appointment of a "budget commissioner" to monitor the Greek government's management of its finances.

German media published news of the possible tax advice mission two days before the German parliament is due to vote on whether to endorse a new 130 billion euro ($175 billion) bailout package for Greece.

International lenders say the public debt burden that forced Greece to seek a bailout two years ago has burgeoned partly because many Greeks evade the tax net.

The German government says it wants to help Greece develop a modern tax administration and has started recruiting volunteers for Greek duty. More than 160 German tax officials with English language skills have signed up and about a dozen also speak Greek, a spokesman for the finance ministry said.

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European Crisis Realities

by Paul Krugman

New York Times
February 25, 2012

This is not original, but for reference I find some charts useful. In what follows I show data for the euro area minus Malta and Cyprus — 15 countries. I use red bars for the GIPSIs — Greece, Ireland, Portugal, Spain, Ireland — and blue bars for everyone else.

There are basically three stories about the euro crisis in wide circulation: the Republican story, the German story, and the truth.

The Republican story is that it’s all about excessive welfare states. How does that hold up? Well, let’s look at public social expenditures as a share of GDP in 2007, before the crisis, from the OECD Factbook:

Hmm, only Italy is in the top five — and Germany’s welfare state was bigger.

OK, the German story is that it’s about fiscal profligacy, running excessive deficits. From the IMF WEO database, here’s the average budget deficit between 1999 (the beginning of the euro) and 2007:

Greece is there, and Italy (although its deficits were not very big, and the ratio of debt to GDP fell over the period). But Portugal doesn’t stand out, and Spain and Ireland were models of virtue.

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Given Greek Deal, Investors May Reconsider Sovereign Debt

New York Times
February 24, 2012

As Greece starts sending out a formal debt restructuring offer to its private sector bondholders in the coming days, the hard-line approach Athens has taken, requiring steep losses for creditors, has prompted fears that other weak countries in Europe might do the same.

By passing a law this week that gives the government the right to impose a loss of as much as 75 percent on all investors who own bonds governed by Greek law, which covers 92 percent of bonds outstanding, Greece has, with one stroke, sharply increased its chances of erasing 107 billion euros ($144 billion) from its total debt burden of 373 billion euros ($496 billion).

The debt restructuring, if successful, would be the largest in recent history, and the losses by banks, hedge funds and other private investors would be among the most painful ever. In this regard Greece trails only Iraq, which imposed an 89 percent loss on its bondholders in 2006, and Argentina, with a 76.8 percent loss in 2005.

Greece has also raised the odds that, as the pain of austerity increases in countries like Portugal and Ireland — to say nothing of Spain and Italy further down the road — the temptation for other countries to turn a similar legal trick will grow stronger.

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Golden rule or golden straightjacket?

by Karl Whelan

Vox
February 25, 2012

Europe’s Fiscal Compact is being widely sold as the essence of prudent fiscal management. But this column argues that the rules in the Fiscal Compact severely restrict a country’s ability to use fiscal policy to stabilise its economy and will often require debt levels far below those considered sensible. The rules should be changed before they become a straightjacket.

Economists have long debated the question of whether macroeconomic policy should be set on the basis of a pre-specified set of rules or whether policymakers should be allowed discretion to set policy as they see fit. Personally, I am a sceptic regarding legally binding macroeconomic rules.

As a professional macroeconomist, I think it is important to admit the limits of our knowledge. Governments can face policy challenges that even the most complex rules may fail to anticipate. We should also acknowledge that our understanding of how the macroeconomy works is, at best, incomplete.

For these reasons, macroeconomic rules that constitute ‘frontier macroeconomic thinking’ at one time can end up being viewed later as overly rigid and outdated (see for example Kirkegaard 2012 on this site). The adherence of international policy makers to the Gold Standard during the 1930s provides a good example.

What is noteworthy about the new EU Fiscal Compact, however, is that it does not even correspond to current mainstream thinking among economists as to how an ideal fiscal policy framework should operate.

I suspect most economists would agree that such a framework should have two key elements.

First, it should guide an economy towards a moderate and sustainable level of public debt.

Second, it should keep public debt fluctuating around this moderate level in a countercyclical fashion, with higher-than-usual deficits in times of recession being offset by improvements in the fiscal position during expansions.

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Lessons from U.S. Bank and Greek Bailouts

by Joseph Mason

U.S. News & World Report
February 24, 2012

Former U.S. Treasury undersecretary for international affairs John Taylor's recent commentary "A Better Grecian Bailout" in February 22's Wall Street Journal was spot on, but five years too late. Replace the term "Grecian" with "Bank" and you have the main object lessons for the U.S. bank bailout that were, of course, not followed.

Taylor notes how investors,

denied the possibility of a write-down, claiming that the problem was illiquidity not insolvency. Many of us with experience from emerging market crises of a decade or more ago recommended admitting the insolvency problem from the start, restructuring the debt, and moving on with economic reform.

As you may recall, that dynamic was (and is) the same for financial institutions failures. The initial claim was that the bank problems were only illiquidity, ignoring the massive write-downs necessary to recognize the realities of real estate markets. Such write-downs are still dragging on and the banking sector is still unable to support economic growth. It would have been better to have admitted the large banks were insolvent from the start, restructured them, and moved on immediately with reform.

Taylor goes on to discuss the bogeyman of contagion, noting, "In my view, fears of contagion were exaggerated… by people who stand to benefit from bailouts or lose from write-downs. ... But contagion is unlikely if policy is predictable." Certainly, key policymakers and regulators were unaware of the existence of the "shadow banking sector" in 2006-07. But that is no excuse for bad bank policy that substituted knee-jerk reactions for judicious assembly of resources to understand and systematically address difficulties in key banking markets that had existed for more than two decades.

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Eurogroup head cannot rule out third Greek bailout

Reuters
February 24, 2012

The head of the Eurogroup of euro zone finance ministers, Jean-Claude Juncker, said on Friday he could not rule out that Greece may need a third bailout.

Euro zone finance ministers struck a deal on Tuesday for a second bailout program for Greece that includes new financing of 130 billion euros and aims to cut Greece's debt to 121 percent of GDP by 2020.

Asked in a television interview if he could be sure Greece would not need a third bailout, Juncker said: "You cannot really exclude that, although we should not have as a starting assumption that a third program will be (needed)."

"We made it clear last Tuesday in Brussels that we are standing ready to support Greece even beyond the time period of this program but I have good reasons to believe that we should now not engage ourselves in a debate on a 'maybe' third program. We should now ... implement the second one," he said, interviewed by David Frost on Al Jazeera.

Asked about some experts' view that a Greek default is inevitable, Juncker said: "I don't see that Greece would go for a default."

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Greece launches long-awaited debt swap offer

Reuters
February 24, 2012

Greece formally launched a bond swap offer to private holders of its bonds on Friday, setting in motion the largest-ever sovereign debt restructuring in the hope of getting its messy finances back on track.

The swap is part of a second, 130-billion-euro rescue package to claw Greece back from the brink of a disorderly default that had threatened to send shockwaves through the financial system and punish other weak euro zone members.

The complex deal was finalized this week after months of tortuous negotiations between Greece and its bondholders that were complicated by European partners driving a hard bargain, hedge funds holding out for a default and pressure on public creditors like the European Central bank to chip in.

The swap, in which investors will trade bonds for lower-value debt securities, aims to slice 100 billion euros off Greece's over 350 billion euro debt load.

The head of the International Institute of Finance (IIF), a bank lobby group that negotiated on behalf of the private sector, expressed optimism that the exchange would attract high participation from investors.

"We remain quite optimistic that once investors study this proposal ... there will be high take up," Charles Dallara, IIF managing director, said at the G20 meeting in Mexico City.

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S&P: ECB Greek bond swap could pile pressure on euro zone

Reuters
February 24, 2012

The European Central Bank's decision to exempt itself from taking losses on its Greek bonds gives its senior status in the bond market and may push up borrowing costs of other debt-strained euro zone countries, Standard & Poor's said on Friday.

The ECB and the 17 euro zone central banks made cosmetic changes to the 62 billion euros worth of bonds they own this week to avoid being pulled into Greece's debt reduction deal, which will see private investors lose well over half their money.

S&P, which carried out a mass downgrade of nine euro zone states last month, said the ECB's move was another blow for the bloc's weaker countries, changing the ECB's status at least in this instance "from implicit super-senior creditor to an explicit one."

"We believe that this development (seniority of ECB) could further weaken the prospects of peripheral euro zone sovereigns currently receiving official funding to regain the ability to access the capital markets and could raise borrowing rates of those sovereigns still accessing the primary markets," it said in a statement.

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