The Greeks – they’re just like us!
First published 17th March 2015, The News Hub…. www.the-newshub.com
The relationship between the European Union, the Eurozone and Greece is no different to the relationships between many governments and their own citizens. The EU-Greece relationship is no more than a macro model of what is currently occurring, for instance, in the United Kingdom.
Let’s face it since the Greek crisis started a few years ago, in the main, the Greeks have been caricatured as lazy, workshy and the architects of their own misfortune. That naturally led to the assumption that they didn’t ‘deserve’ support from their richer European cousins unless they changed their ways.
Here in the United Kingdom, the scrounging working classes, just like the Greek nation, have really been clobbered over the last few years. They have been characterised as lazy, workshy and sitting back, as hard-working richer people fed them undeserved benefits. Government slogans such as “The workshy”, ” Abuse of the system” and “Benefits Culture” became common.
The government not only blamed them for a poorly designed welfare system by cutting benefits but humiliated the sick and disabled by forcing them to undergo questions and tests to ascertain whether they were deserving of government support.
Welfare benefits were even reduced if the State decided that they had more bedrooms than they really needed!
This was forced austerity without purpose.
The Greeks are taking the rap not just for their own economic shortcomings but for a very badly conceived and designed Eurozone. Their punishment too was humiliation through austerity.
Poor Brits had the state machinery and official interrogation to contend with whilst the Greeks were humiliated by the fiscal police known as ‘the troika’. Same principle, different scale.
The EU continues its slogan of “We want Greece to remain within the EU”, when all the evidence so far, is to the contrary.
The equivalent UK slogans are all about those ubiquitous ‘hard-working people’ and being ‘In it together’, which just like the EU – is supposed to be a club that everyone needs to belong to.
The oppressed eventually find a hate figure. The Greeks have found themselves the Nazis and poor Brits have found themselves ‘the toffs’ and the bankers. The Greeks want reparations for the damage done during WW2 and the Brits are enjoying bankers forgoing their comedy bonuses. The oppressors (real or imaginary) also need to be punished – an economic quid pro quo!
The Eurozone’s motives in not being too overt in helping the Greeks are very straightforward.
They say that they want to avoid a possible Greek exit from the Eurozone but in fact, it’s much more than that. There are other states within the European Union which are just below the radar and could potentially be in just as much trouble as the Greek economy. Spain and Portugal immediately spring to mind.
If Eurozone officials were not seen to dispense a certain amount of punishment to the Greeks before helping them, or if Greece decided to leave the Eurozone as a result of not being able to stand any more EU humiliation, others would doubtless follow . That means that Greece can only be helped by being thrown the occasional EU morsel, preceded by a public serving of abuse or austerity.
In the United Kingdom, the poor are being kept in line by also being thrown the occasional morsel such as an increase in minimum wage, a meaningless shift in tax bands or mini handouts which no doubt will be expressed by the Chancellor of the Exchequer in this week’s Budget.
It’s all about keeping the poor in check without giving others any ideas.
It’s all about keeping the poor in check without giving others any ideas.
EU urges Greece to ‘stop wasting time’ on reform
(Reuters) – The head of euro zone finance ministers has urged Greece to “stop wasting time” and buckle down to serious talks and implementation of a reform programme to secure urgently needed fresh funds from its international creditors.
“Little has been done since the last Eurogroup (meeting two weeks ago) in terms of talks, in terms of implementation,” Eurogroup chairman Jeroen Dijsselbloem said on arrival for a meeting of ministers of the 19-nation currency bloc.
“We have to stop wasting time and really start talks seriously,” he said, adding that euro zone partners stood ready to support Greece if it continued on the economic reform path.
Euro zone officials were not persuaded by a letter sent by outspoken Greek Finance Minister Yanis Varoufakis on Friday outlining seven planned measures. They said it was only a starting point and no basis for releasing frozen bailout money.
Varoufakis irritated EU partners in a weekend newspaper interview by dangling the prospect of a referendum.
Dijsselbloem said earlier the steps outlined were “far from complete”, adding that it would be very difficult to complete the reform programme during the four-month extension of Greece’s European Union/International Monetary Fund bailout that runs until end June.
Shut out of capital markets and with international loans frozen against a background of falling tax revenues, Greece could run out of cash later this month.
Hardline German Finance Minister Wolfgang Schaeuble told reporters Athens must start implementing its obligations and refrain from unilateral changes to its commitments.
Varoufakis, who wants a negotiated restructuring of Greece’s debt to official lenders, was quoted by Italy‘s Corriere della Sera on Sunday as saying the leftist-led government could call a referendum or early elections if European partners rejected its debt and growth plans.
The finance ministry later clarified that the Marxist former academic had been replying to a hypothetical question and that any referendum would “obviously regard the content of reforms and fiscal policy” and not whether to stay in the euro.
French Finance Minister Michel Sapin said on leaving Paris for the meeting that while he was not worried about a risk of Greece defaulting, “things are serious”.
A source at the European Central Bank said the cash position of Greek banks, on a drip-feed of emergency funding, appeared to be stabilising after heavy deposit outflows from December to late February. The ECB would not allow Greece to increase its issuance of short-term treasury bills because it could not allow monetary financing of the government, the source said.
A senior politician in German Chancellor Angela Merkel’s conservative bloc said Greece would be better off outside the 19-nation euro zone, suggesting that Schaeuble privately agreed.
“By leaving the euro zone, as Finance Minister Schaeuble has suggested, the country could make itself competitive again from a currency perspective with a new drachma,” former transport minister Peter Ramsauer, a member of the Bavarian Christian Social Union (CSU), wrote in Bild.
Merkel and Schaeuble have both said publicly they want to keep Greece in the currency area. But in a sign that German sentiment may be shifting, Ramsauer said a temporary “Grexit” would be a “great opportunity” for the country to boost its economy and administration “making it fit to return to the euro area from a position of strength”.
GREEKS WANT TO STAY
Seeking European support for his government’s efforts to alleviate deep hardship caused by austerity, leftist Greek Prime Minister Alexis Tsipras will meet European Commission President Jean-Claude Juncker on Friday.
A Greek official said they would discuss how Greece can use EU funds to tackle what he called the humanitarian crisis.
Juncker has been trying to mediate between the new Athens government and its EU creditors, notably Germany, but his efforts have irritated Berlin, the euro zone’s main paymaster, which is keen to avoid sending mixed messages to Greece.
German Deputy Finance Minister Steffen Kampeter said in a radio interview he did not expect substantial decisions on Greece at Monday’s Eurogroup meeting because ministers were waiting for more financial details on the reform plans.
He criticised Varoufakis’ talk of a referendum or returning to elections, saying it would only delay what needed to be done.
An opinion poll on Monday showed a large majority of Greeks want Athens to reach a compromise deal with lenders to avoid having to leave the euro.
Some 69.6 percent of Greeks say the new leftist-led government should look for an “honourable compromise” to resolve the crisis, according to a Marc survey for the newspaper Efimerida Ton Syntakton. Only 27.4 percent of those questioned wanted Greece to refuse any compromise, even if that meant having to leave the euro zone.
Tsipras won power in January promising to renegotiate the bailout package and end austerity, but was forced to accept a four-month conditional extension to avert bankruptcy.
(JAN STRUPCZEWSKI AND INGRID MELANDER with Additional reporting by Robin Emmott, Tom Koerkemeier, Renee Maltezou and Robert-Jan Bartunek in Brussels, Toby Sterling in Amsterdam, Stephen Brown and Noah Barkin in Berlin, Steven Scherer in Rome and Angeliki Koutantou in Athens; Writing by Paul Taylor Editing by Jeremy Gaunt.)
The risks of a Greek Collapse
While Greece seems to be engrossed in its “success story,” the country’s partners appear more concerned with its “stability story,” in other words whether or not the country will stay on an even keel. There are several reasons why this is what they are most interested in.
Portugal is on the brink of a major political crisis; Italy seems unable to find solutions to its problems, and an out-of-control collapse in Greece would complicated this already tenuous situation. There are also broader geopolitical reasons. The Americans and the Europeans are becoming quite frightened by the chaos in the Middle East, especially at a time when Israel is particularly isolated. Their stance toward Turkey has also changed as they grow more and more concerned by the instability there and Prime Minister Recep Tayyip Erdogan’s arrogant behavior. A Greek “accident” is seen as very dangerous in such a climate. Of course there are those who expect Greece to fail, but argue that even if does, it will find a way to get back on its feet. The majority of international observers and officials, however, do not take the possibility of a Greek collapse so lightly.
So what is the problem? The Greek political system and public administration are nowhere near achieving reform targets, even when these are lowered. The international community is aware that it can exert pressure on Athens until the end of the year when Greece hobbles to a primary surplus. But, as that time approaches and it feels that it only has a few more months to exert influence, the more pressure it will apply. And this is where the danger lies: Greece’s creditors may cause the crash by applying too much pressure.
In the middle of it all are the markets, either in the form of large funds willing to invest in the new low-cost Greece or in the form of lenders who would like to see the Greek bond market operate again.
Prime Minister Antonis Samaras believes that maintaining calm is the top priority. He hopes that an excellent summer in terms of tourism, public works projects due to begin imminently, the TAP pipeline and some good investment news will create a positive climate come the fall.
At the same time he is equally aware that the people are about to be hit with a cascade of taxes and that if these are not collected the fiscal gap will be hard to manage. No one can predict whether there will be a sense of positive shock or an even greater feeling of misery in the fall.
All of this, meanwhile, is taking place ahead of an anticipated clash between Berlin, the International Monetary Fund and Brussels right after the German elections over whether Greece should receive a further debt writedown and a different policy mix.
©Alexis Papachelas : Ekathimerini.com
ECONOMIC CHAOS ?
The piece below is over 2000 words long and I have just completed it for a client .
It is about the random nature of an economic system.
Have you ever wondered why ALL economic predictions are wrong? Have you noticed that in spite of a proven record of error, economists and politicians continue to bang their heads against the forecast-wall and refuse to do anything else but continue to predict outcomes which by now, they must realise will be incorrect?
They certainly use all the latest computer models which have been empirically derived and used for many years.
So, are there any incorrect assumptions about “fundamentals”?
Is the economic process Stochastic (a sequence of random variables)? Or is it Deterministic (when the output of a system is totally dependent on its initial state and subsequent inputs – and therefore, predictable)?
(Mind you, to add to the confusion, deterministic systems may occasionally produce random and therefore unpredictable results. )
Is economics a question of Stochasticity v Determinism?
Why do I ask the question? Because there appears to be a total absence the ‘stable equilibrium’ predicted by classical economists.
On the contrary, Market Economics behaves like a collection of dynamically unstable systems. The instability is attributed to external ‘shocks’ rather that any fault in the basic concept. There is what can only be described as ‘non lineality’.
One solution to this ‘non-lineality’ is CHAOS THEORY!
So far, no real evidence has been produced of ‘low – dimensional’ Chaos in economic processes but there are definitely discrepancies between the ‘expected’ according to classic economic models and the ‘observed’. Just look at any economic prediction within your memory. It was probably incorrect.
We still have a ‘mechanistic’ view of the world and economics as a ‘hangover’ from 18th century SCIENCE.
Scientific thinking is very simple: ‘Measure, predict and adjust until you no longer have any more surprises. Then keep measuring to confirm that what you measured in the first place can be replicated’.
Economics was conceived on that same principle . It was established as a ‘science’. That’s where the Determinism crept in.
It was at this time that man first considered the possibility of his own intellect being so unconstrained that he would eventually understand the ‘Universe and everything’ through the medium of scientific reasoning.
This principle was applied to all sorts of activities and thinking – including economics.
The so-called ‘Enlightenment Policy’ would help man in his pursuit of happiness. Especially in the sciences. Science was cool and now in the early 21st Century it is enjoying a bit of a revival.
Of all the subjects on offer, Physics became the admired Paragon for Enlightenment and so it continues.
The way Physics works is simple: Carefully describe an environment and you should be able to predict the outcomes of any experiment conducted within that environment.
Likewise in Economics: Know the initial environment and you should be able to predict outcomes based on subsequent inputs.
The belief stemming from that philosophy is that EVERYTHING is governed by ‘NATURAL LAWS’ which are a set of ‘cause-effect’ regularities. That means that everything can be predicted.
These same principles have been applied to Economics.
A simple scientific rule is that ‘The state of any system is a consequence of what it was in the preceding moment…..and so on.’
In the beginning, random occurrences had no place in such linear thinking. Everything was governed by Mathematics and Laws.
However, there is one major flaw in the way that we ‘do’ science: That is our ignorance of the CAUSES which generate phenomena and events.
For instance, we know the effects of gravity – which we can measure but we don’t really know the CAUSE.
However, in spite of our ignorance of the exact causes of events added to the imperfection of our analyses, we still cannot have 100% certainty about the vast majority of phenomena.
Economists also appear to have forgotten both the imperfection of analysis and their ignorance or (at best) of the exact CAUSES of events.
What is the solution? What is to be done about our comparative blindness?
Our ‘crutch’ is the science of probability. Chance.
Current economic thinking is a throwback. In economics, the world is still viewed as totally deterministic.
‘STOCHASTIC’ is non-existent – as is uncertainty because uncertainty is treated as ignorance or a failure to understand the deterministic rules of a very complex system.
Yet, with ALL our processing power, no-one has yet been able to establish those rules which should predict outcomes.
So, as Chaucer wondered in The Nonnes Priest Tale – Travelling from A to B: Freewill or Predestination?
Looking at the unpredictability of economic outcome, we move from linear to non-linear dynamics, from certainty to probability, from Economic Theory to Chaos Theory.
Theories of economics have been shaped by the assumption of ‘Rational Man’ who behaves in accordance with a known set of rules.
The evolution of economics into a science was ‘booted’ into becoming a science when it was ‘mathematicised’. Formulae arrived and suddenly, it became a bona fide branch of Applied Mathematics.
Many of the original people who translated economics into a mathematical form were physicists, engineers and mathematicians…… and it still shows. At that time, their view of the world was ‘linear’.
Does that work in economics? The short answer is ‘no’. That is why economists are struggling, interpreting and making excuses.
Marshall in his ‘PRICIPLES’ compared the study of economics to the study of tides. The number of variables affecting tides means it is impossible to create a consistent dynamic picture.
Even nowadays, there isn’t enough processing power to generate an accurate picture of such a dynamic system, especially as the number of variables affecting such a system is, for all intents and purposes – infinite.
Imagine random stones being thrown into the sea or small outcrops of rock or variations in the seabed. They all have an effect on the ‘shape’ and speed of the tide.
And so it is with an economic system: lots of rocks, stones and other variables.
It is not possible to formulate or predict a picture of such an infinitely dynamic system.
Currently, economic theory appears to predict that any shock to such a dynamic system will (obviously) have an effect on the system but that it will ultimately converge-to or seek either a new equilibrium or ‘tend’ towards its original equilibrium because, after all – that’s what ‘systems’ are supposed to do!
Economic Theory assumes a tendency towards stability and equilibrium with certain ‘oscillatory happenings’ on the way.
So we have a situation where economic thought was (and still is, in most cases) linear, deterministic and quasi-dynamic. That is to say, the ‘set-in-concrete’ notions of certainty, invariant economic laws and sameness……………..rather than approximation, probability and infinite variety.
For instance, the Bank of England predicts an inflation rate one year ahead, based more on hope than fact or perceived fact. But when such predictions are (always!) wrong, there is no revisiting of the thought process, merely another prediction with little or no basis in anything-in-particular.
Often, both ‘inputs’ and predicted outcomes are decided by committee and vote!
All predictions appear to be based on an assumption of an ultimate convergence of economic process to stability, via those periodic cycles which, although not understood are treated with a certain sense of fatalism.
Chancellors are so locked into predictions based on erroneous facts that they will even massage their outcomes in order to land somewhere near the expected landing point – purely in order to retain credibility not only for themselves but also for ‘the system’.
What cannot possibly be countenanced are the random fluctuations of what is most likely a permanently unstable economic system. We don’t do that sort of thing because it may suggest a lack of control!
Let’s have a look at non-linear Economic Dynamics.
Actual (REAL) economic results indicate little resonance with the symmetry and regularity suggested by a linear mechanistic dynamic system. (Something that moves predictably along a pre-determined path).
On the contrary, fluctuations and movements are totally unpredictable. That means that regular Deterministic Laws cannot apply.
If we look at an economic situation in say, the Eurozone at a particular point in time, we may try to predict an outcome in say, 10 years’ time.
However, a small variant or an incorrect assumption in our analysis of the initial economic situation will have an effect on the ultimate outcome. The earlier that variation occurs, the more devastating will the effect be.
For instance Greece’s hidden debt at the time of its accession to the Eurozone, undetected at the time, is having a huge effect on the Eurozone’s economic outcome.
Meanwhile, the economists, bankers and politicians crave and need the comfort of ‘stability’. They know that the further the Eurozone travels from the initial conditions at Greece’s entry into the Euro, the more anomalies“The Greek Effect” will generate. It’s a self-amplifying issue.
Consequently, the bulk of the work of Eurozone politicians is now concentrated on creating a series of ‘faux’ stabilities.
It is the fallout from Stochasticity which is causing fear with Determinism being their comfort and shelter.
It was only 60 years-or-so ago that stochastic considerations were appended to classical economic theory.
But the so-called New Classical Macroeconomics was no more than a compromise. “Let’s introduce a Factor X because we can no longer ignore it.”
Yet, the economists still needed their ‘models’ – because deep down they were still the mathematicians and physicists of old.
A formula was devised (SLUTSKY) which took the linear dynamic business cycle model and added random (not necessarily economic) terms which attempted to explain the real ‘actualités’!
At last, an attempt had been made to explain ‘exogenous shocks’ to an economic system by the introduction of nothing more than random error terms.
But what was REALLY missing in classical economic reasoning was the concept of NON-LINEARITY.
So, the battle was between a Linear Model with a Stochastic Term (a fiddle factor) versus a pure Non-Linear Model.
Obviously by now – 200 years from the beginning, we have to assume that the evidence for linearity in economics has been overestimated!
So, if we agree that we do need a new non-linear model of econonomics, what are we searching for? What are the other ingredients and how do we ‘work them in’?
Do we want a synthesis of economics, psychology, politics and sociology? Or do we simply stick to the notion of determinism?
Human evolution is viewed as a random process (although the way it is often expressed makes it seem as if scientists view it an ‘inevitable linear’).
The evolution of an economic system is also pretty random, except that, applying psychology, politics and sociology, it can never be a system that can develop naturally. (For example, Survival of the Economically Fittest).
Mind you, economists have already had several attempts at introducing the concept of non-linear economics.
Followers of Keynes developed theories which generated Real Business Cycle Theory but any exogenous shocks to the new non-linear system were considered as merely ad hoc disturbances.
Economists could NOT break away from LINEAR THINKING. Linear thinking was being applied in an attempt to imprison a loose and free system, which tended to CHAOS.
The result? More economic models that you can shake a stick at!
It is only fair to say that our understanding of economic phenomena has been greatly enhanced by all these models and formulae…… but still no cigar. No General Theory of Economics. No equivalent of E =mc2….+εe
So Chianella, Pun, Goodwin, Kaldor, Baldrin, Woodford, Barmal, Benhabib etc have all done their bit but we’re still NOT QUITE there.
Unfortunately, for all intents and purposes, many of the models did no more than introduce the concept of economic ‘white-noise’.
Chaotic systems generate their own randomness without need for external input. Therefore in a chaotic system, predictions can ONLY be very short term and even if there were deterministic rules within such a chaotic system, an inability or failure to 100% ‘book’ the initial conditions of the system will always yield forecasting errors.
This all suggests that economic forecasting (except that on a very short time-scale) is a nonsense. PLUS – the bigger the system, the bigger the CHAOS.
That would suggest that a proposal such as a EUROPEAN ECONOMY is a flawed concept because there is very likely to be an exponential amplification of Chaos.
The dynamic of a mega-economy is very different to a housewife balancing the books at home – although economists are still applying the same principles to both.
Unfortunately so far, classical economists continue to resist economic chaotic concepts.
The reason for this apparent intransigence is simple: it is very difficult to extract evidence of chaotic dynamics from economic data – especially on a meaningful scale. Especially if another dose of chaos is injected into the ‘mix’ by erroneous or spurious data.
In order to predict in a chaotic system a VAST (infinite) amount of data is required – far more than is normally available and so far, the search for Chaos in economics has not been successful.
Meanwhile it is Chaos which is making long-term economic forecasting totally impossible and increasingly sophisticated and precise measurement of ‘initial conditions’ incredibly difficult and potentially prohibitively costly.
If we imagine an economy to be like a cloud – subject to all those forces that clouds are subject to, we can see the impossibility of a mathematical model which can predict the size, shape and exact direction of the cloud or even its shape and volume as it travels.
Its ultimate shape will always remain a mystery.
Politicians, bankers and economists ought to be able to say ‘I don’t know’ without us constantly expecting magic answers which do not exist.
For example: ‘Mr Chancellor or Mr Banker – what will be the effect on the economy of billions in Quantitative Easing?’ Correct answer? ‘We don’t know.’
“The initial conditions of a system are always uncertain, while Chaos guarantees that these uncertainties make prediction impossible.” (Heisenberg)
THAT is the essence of Chaos within an Economics System.
It’s STILL all Greek!
Eurozone Ministers have arrived at a “pact” in respect of Greece. The pact allows the release of those much-needed loans that have taken up so much of the Eurozone’s time and energy. You may think that this is all very good news for the Greek people.
However, the central core of the agreement is that Greek Public Debt should fall to 124% of Gross Domestic Product by 2020 and is to be achieved via a raft of more debt-cutting steps and continuing austerity.
This “tentative” agreement should see the release of up to €44 billion in bailout funds to Athens, otherwise….. formal insolvency beckons.
Once again, we are going to be witnessing a process of German dissidence, the continued rise of the IMF, performance-related stage payments, delays etc….as the Greek funding is parsimoniously unlocked in three increasingly painful stages.
The formal decision and an agreement on how these disbursements are to be managed will me made by 13th December. One thing that we can be sure of is that each payment will involve a similar process of troika visits, meetings and procrastination.
Apart from cuts to the interest rate which Greece is having to pay on all of its loans, there will be an 15 year extension of the bilateral and EFSF loans plus a deferral of 10 years on interest payments on EFSF loans.
So what difference will all of the above make to the average Greek in the street?….NONE.
Yesterday, Bank of Greece Governor George Provopolous said that the Greek economy is expected to grow in 2014. He feels that by then, Greece’s fiscal problems will have been eliminated.
He did not specify how the country’s political, social and institutional issues will have been dealt-with.
The main effect is that the Markets will now enjoy a few more days in the Greek sunshine…….as they await the next cloud………
Venizelos’ Oral Plan
1. There is need for immediate actions by Greece in the period of August-September that will concern high-level contacts with the leaders of the EU member states and also the institutional partners (European Commission, European Central Bank and International Monetary Fund), and also for shielding the domestic front. The national negotiating team must be formed and the opposition called on to contribute to the effort. Venizelos said it would be a “mistake” and “insult to the country” for it to be said that it has been inert with respect to the structural changes, adding that the changes effected from 2010 to the present are “unprecedented” and the reproduction of such stereotypes at Greece’s expense must stop.
2. The country must manifest its strong determination to promote structural changes, and noted the 77 obstacles pinpointed by the Fund for privatisations, which he stressed need to be immediately eliminated through legislation.
3. The end fiscal target must immediately be confirmed, so that from a deficit of 11.5 billion euros we will go to a primary surplus, and a 2.6 percent growth rate must be achieved.
4. The fiscal adjustment period needs to be extended to 2016.
5. It is necessary to draft an updated programme for the period 2012-2016, so that the 2012 budget may be closed and a draft budget drawn up for 2013, which should be tabled in parliament in early October.
6. A proposal should be drawn up for full itemisation of the programme for 2012-2014, without across-the-board cuts that affect small and medium incomes.
7. Improvement of the macroeconomic climate which, if improved, will enable an easier implementation of the second stage of fiscal adjustment in 2014-2016.
8. Immediate and tangible measures must be taken to increase employment in tandem with a reduction of the cost of money, as well as measures to control prices.
9. Measures must be taken to reinforce social cohesion.
10. The international communications framework that is negative towards Greece must change, in cooperation with the partners.
The “must be” phrase is the one which gives the illusion of action but in fact means absolutely nothing. It is not even a statement of intent. You will notice (in bold above) that Venizelos is using exactly the language which I outlined HERE .
Political pronouncements would carry far more gravitas if they sometimes contained dates and more definite verbs. For example, looking at just ONE of the items on Mr Venizelos’ shopping list:
See the wording of No 8 (above)…NO amount…NO date…..in fact, NOTHING definite. Here’s a slight modification:
8. Immediate and tangible measures must be taken to increase employment in tandem with a reduction of the cost of money, as well as measures to control prices.
A modified version:
8. Directly through the Treasury, we are allocating €5 billion to be available to employers, specifically for them to hire new people. This money is available now and the employer will be paid the equivalent of six months of the new employees salary on Day 1 of that employee joining the business. This facility will be open only to those employers with an annual turnover of under €500,00 per year. All start-up businesses will be completely tax-exempt for 12 months.
(The figures are only for illustration purposes but they do shed some light on the difference between empty political words and a PLAN.)
It looks as if Mr Venizelos continues to practice exactly what Eurozone politicians have been indulging themselves in for the last FOUR years:
ORAL POLITICS : Words WITHOUT actions.
The Eurozone’s Déjà vu Economics
For years, regulators have been trying to control bad banking. Governments have been failing to control bad sovereign fiscal governance. That’s the nature of the Eurozone. This flawed approach has only left one solution – at some stage, both the banks and sovereigns will have to be properly underwritten by the European Central Bank (ECB).
One day soon, the ECB will become the lender-of-last-resort.
However, possibly for reasons of either dull-wittedness or maybe just some good old-fashioned showmanship, the ECB never makes a move until there is a proper danger of a crisis. (Think Superman grabbing that train on a railway bridge just seconds before it falls into the ravine.)
Unfortunately, this economic scenario appears to be played out on a perpetual “loop”.
Déjà vu Economics.
Currently, markets are once again applying severe pressure to Eurozone public debt and Euro politicians are repeating the “We are determined” and “Whatever it takes” mantras. The markets continue to fluctuate “in vacuo” with little regard to the “real” conditions, further confusing the politicos who, for some unknown reason, believe that the solution to everything lies in greater Eurozone union and organisational changes. (Bless them! It’s all they know!)
The next stage is simple (and it began last week): a few mealy-mouthed statements from Euro leaders which attempted to shove the crisis-cursor forward a few weeks until after the end of the Summer Holidays – whilst Spain and Italy (both standing on the trapdoor) have issued “holding statements”.
The well-worn and rapidly failing policy response from the Euro Gods is those potentially explosive “Austerity Measures” – the only other technique in their repertoire. Yet another case of the cure being more painful than the disease. Ask Greece.
In 2010, the Greek Government (just before it lost access to the markets) po-pooed the idea of needing help. “We are not Latin America!” they scoffed. Now it’s Spain’s and Italy’s turn: “We are not Greece!”
Oh yes you are – only bigger, hungrier and therefore more dangerous – and remember this, when you too lose access to the markets, you will need a bailout.
Euro politicians do play with a very limited repertoire, so Spain and Italy will have yet more austerity. That will accelerate the deterioration of their economies – although their politicians will talk (a lot) about “growth”.
This (just like in Greece) will result in lower tax revenues and austerity targets being missed (although the “Troika” continues to believe that, contrary to all the evidence, an economic miracle will manifest itself . Suddenly, as if by magic, they hope that the Perpetual Spring of Eternal Economic Growth will materialise out of the ashes of Austerity!!).
Then, the banks will need yet more and we’ll end up discussing when Spain and Italy will leave the Eurozone. Then France…..
That will return the cycle to Square One with the politicians once again being “Determined” and promising to do “Whatever ir takes”.
Another dose of Déjà vu Economics.
Meanwhile, should the crisis look really dangerous, the ECB’s Marion Draghi will find a telephone box, change and fly-in to save the day. “To calm the Markets”
The banks have spent four years watching and secretly hoping that this ridiculous loop continues forever, Why? Because once the ECB steps in and protects sovereign debt, those debts will have a price. Banks will have to revalue any debt they are holding (downwards), resulting in quite a few of them going to the wall.
There will be yet more “haircuts” for private investors too!
Just like a rapidly expanding non-working retired population needs more and more support from an increasingly taxed but shrinking working population, so the Eurozone is becoming an arrangement whereby more and more non-producing and increasingly reliant countries have to be supported by a rapidly shrinking collection of fully-functioning states.
The tipping point is not too far away – the point at which there are more (economically) broken states than those in reasonable health which can continue to support them.
Meanwhile, let’s have some more Déjà vu. Again.
Merkel Gives No Ground on Demands for Oversight in Debt Crisis
(Bloomberg) — Chancellor Angela Merkel gave no ground on Germany’s demands for more European control over member states in return for joint burden-sharing as she conceded that the bloc has yet to master the debt crisis.
The German leader said yesterday she hadn’t softened her stance at last month’s summit in Brussels and that a so-called banking union involving a bloc-wide financial overseer will have to include joint oversight on a “new level.” She chided member states who had sought to slow moves toward greater central control “since the first summit” in the 30-month-old crisis.
“All of these attempts will have no chance with me or with Germany,” Merkel said in an interview with broadcaster ZDF in Berlin.
Two weeks after a European Union summit aimed at bridging differences over crisis resolution, euro leaders are still squabbling over details of how to lift the bloc out of the turmoil. Merkel hardened Germany’s position that any attempt to share burdens in Europe — such as jointly issued euro bonds or common banking bodies — must first be met with greater cooperation and a handover of some sovereignty to Brussels.
The euro fell to its lowest level against the U.S. dollar in more than two years last week, sliding to as low as $1.2163 on July 13. Europe’s most credit-worthy government bonds climbed, with German two-year note yields down to a record minus 0.052 percent, as investors sought havens from the euro crisis.
Diverging rates and capital outflows within the 17-member monetary union signal that the single currency is “slowly unraveling,” Stephen Gallo, senior foreign-exchange strategist at Credit Agricole SA in London, told Bloomberg Television’s “The Pulse” in a July 13 interview.
“The whole project is unraveling, that’s what’s essentially happening now,” Gallo said.
While Merkel said that Europe is on the “right course” toward putting an end to the crisis, euro-area leaders “haven’t solved the problems conclusively.”
German lawmakers will interrupt their summer vacations and return to Berlin on July 19 to vote to approve 100 billion euros ($122 billion) in rescue loans to Spain. After Spanish Prime Minister Mariano Rajoy last week announced 65 billion euros in welfare cuts and tax increases, Merkel reiterated yesterday that financial assistance would not be doled out without conditions.
“Whoever receives assistance and where liabilities are taken over, there has to be control,” Merkel told ZDF.
French President Francois Hollande, Italian Prime Minister Mario Monti and Spain’s Rajoy have pressed for faster action, including joint liabilities, while Merkel has called jointly issued debt the “wrong way” to fix the crisis. Merkel last month castigated a blueprint for the summit by EU President Herman Van Rompuy as too focused on “collectivization.”
Euro officials this month have also sparred over the timetable for establishing a euro-wide bank supervisor, a benchmark required before they implement one of the decisions from the June 28-29 summit — direct bailout funding for banks. Investors have viewed such a step as a way to sever the link between banking debt and sovereign debt.
Euro-area finance ministers will confer on Friday, July 20, to complete an agreement on Spain’s bank bailout. On July 10, the minister’s announced 30 billion euros of aid would be made available by the end of this month.
Klaus Regling, who heads the euro’s bailout funds, told Welt am Sonntag yesterday that governments could avoid liability for bank rescues under proposals for a regional supervisor. That contradicts German Finance Minister Wolfgang Schaeuble, who said July 9 that he expects governments to guarantee loans even if they go directly to banks, Welt said.
Merkel said leaders hadn’t yet reached an agreement on the terms for bank rescues.
German Bundesbank President Jens Weidmann said euro leaders had caused damage by failing to define more clearly their conclusions at the summit. He told Dutch newspaper Het Financieele Dagblad on July 14 that euro nations “should discuss giving up sovereignty with the same openness as the question of how to resolve the debt problem collectively.”
As governments in Spain and Italy struggle under the burden of higher borrowing costs, Weidmann, Germany’s chief central banker and a European Central Bank GoverningCouncil member, told Boersen-Zeitung that Italy’s higher yields don’t justify a request for bailout assistance. Euro bailout funding should be deployed only as a last resort, he said.
“If Italy stays the course on reforms, it’s on a good path,” Weidmann told the newspaper in an interview. Asked whether the euro area’s third-largest economy needs to tap the fund, he said, “No, I don’t see Italy in that situation.”
Italian Prime Minister Mario Monti has sought a “debt shield” against spillover from a Spanish banking crisis.
Euro-area leaders have given Spain an extra year, until 2014, to drive its budget deficit below the euro limit of 3 percent of gross domestic product, a concession that may foreshadow leniency for other indebted states in the bloc.
In Greece, an MRB poll published in Athens-based Real News newspaper showed that almost three-quarters of Greeks want Prime Minister Antonis Samaras’s coalition government to insist on a renegotiation of the country’s international bailout.
Seventy-four percent in the survey said the government should insist on discussing the terms even if negotiations steer toward the prospect of Greece leaving the euro; 15.5 percent said the government should stick to current conditions.
Volker Kauder, the parliamentary leader of Merkel’s Christian Democratic Union, told Welt am Sonntag that he doesn’t want to give Greece more time to meet economic targets.
Merkel, asked the same question during the ZDF interview, said she would await a report by Greece’s international creditors, known as the troika.
With assistance from Tony Czuczka in Berlin, Paul Tugwell in Athens, Guy Johnson in London and Fred Pals in Amsterdam. Editor: Dick Schumacher.
To contact the reporter on this story: Patrick Donahue in Berlin at email@example.com
To contact the editor responsible for this story: James Hertling at firstname.lastname@example.org
Eurozone “plan” – an Oxymoron.
Talk of “firewalls” and “rebuilding” balance sheets and other construction-related metaphors are wearing a bit thin.
So far, they’ve clearly demonstrated that they would have difficulty in planning their way out of a wet paper bag.
Greek Texas Hold ‘Em
The Greek Syriza leader has the measure of the Eurozone sheep.
You may not agree with his politics but Alexis Tsipras is THE ONE that Eurozone leaders do NOT want to negotiate with.
They have been bluffing that they’re “ready” for a Greek Euro exit. It’s all talk!
They are NOT ready and Tsipras KNOWS IT . He also knows that a Greek exit (forced or otherwise ) would not-only create economic and banking havoc but that the after-shocks would be felt all around the world.
He’s willing to call their bluff because he realises that countries such as China & Russia are standing-by and would immediately move in with investment.
German Hypocricy knows no bounds – especially in respect of Greece!
Twice during the 20th Century, Germany left Europe in a mess. Now, in the 21st Century, it is their intransigence rather than their high explosives which may once again create European chaos.
Germany had to pay reparations after WW1. However, after its defeat in WW2, reparation payments were NOT resumed. In addition, there was another outstanding debt comprising of what the German Weimar Republic had been using to pay reparations. They had to borrow to pay.
In 1953, an international conference decided that Germany could could defer some of the debt until East and West Germany were reunified – although because a reunification was though to be unlikely, this was effectively a debt write-off.
By 1980 West Germany had repaid some of the debt although the remainder (according to the 1953 agreement) would be serviced for another 20 years.
The final payment was due on 3 October 2010 which was the the 20th anniversary of German reunification.
Over 10% of this debt, about 20 million euros, has never been paid.
So please Germany, remember that Europe has shown you mercy on more than one occasion.
Time to return the compliment and defer the WHOLE of Greece’s existing debt for – what shall we say? 30 years?
….and YOU can pick up ALL the interest payments.
(THAT, my Greek friends, is how to negotiate with the Germans.)
Greece and the Moneylenders
Today, there appears to be a general sigh of relief in Europe. Stock Markets are climbing , driven by a new banker confidence. Positive noises are beginning to emanate from Eurozone Ministers. They are all looking forward to the approval of the latest Greek bailout. Will Monday 20th February 2012 really be the first day of the rest of our Euro lives?
Is it all over? Are we now scaling a slightly easier cliff to the upper plateau of Euro-prosperity? Will disaffected and now disenfranchised Greek people stay indoors and patiently wait 10 or 15 years while their “Neu” European Masters make things better?
Even Germany’s Finance Minister Wolfgang Schauble who finally came came blinking into the daylight a few days ago, appears to have been temporarily muzzled.
Politics are an illusion. The difficulty is in discriminating between the headlines, the expected conclusion and the most likely outcomes.
Today, it looks as if all that Greece has to do is meet the conditions imposed by Germany, Holland and Finland for its latest bailout package to be approved. Furthermore, it also looks as if they may be able to manage to agree both the bond exchange programme as well as Greece’s debt reduction in one fell swoop.
That has been the real progress. During the last week, there was talk of a two-stage approval, beginning with the most important “victims” – the bankers and hedge fund managers being dealt-with first, followed by the Greek people. Most appear to be in agreement that both aspects can now be dealt with together.
However, Germany (one imagines with the full support of the government and Angela Merkel) continues to make those unpleasant macho Teutonic noises.
For instance, Steffen Kampeter the German Deputy Finance Minister: “This coming Monday, we will see whether Greece delivers or whether we will be forced to decide on another course of action, one that is not desired.”
Despite the posturing , the rhetoric and the barely-concealed German instinct to rule Europe, the 14.5 billion euro Greek bond redemption will take place on March 20th. It was always going to take place – whether the entire Greek bailout package was approved or not. Even if it meant the cap being passed round the Eurozone – and we’d probably even find the United States and others making a contribution. Not giving money to the hedge fund managers and bankers was never an issue.
The real issue and rather alarmingly, the one which appears to have become the least important to the Eurozone High Command is the welfare of the Greek people. The Euro rulers have already showed the world that they would be quite happy to destroy Greece if they decided that it was expedient to do so.
Eurozone ministers spooked themselves last week on hearing that Greece would miss its debt-reduction goals.
Last year, Greece’s debt was 160% of Gross Domestic Product. This year , after being told to butcher its economy, Greece will probably deliver a reduced debt run-rate (by 2020) of only 129% of GDP. That is quite an achievement – bearing in mind the collateral damage.
However, Euro Ministers are experiencing the vapours because the set target was 120% of GDP by 2020. So what is the answer? You’ve guessed it. More Austerity.
The other unsavoury aspect of the Greek situation is that in spite of the whole arrangement being presented as a process of great charity, profits are being made. Profits are being generated from Greece’s misery.
The first 110 billion bailout in May 2010 was charged at an average rate of 5% per annum. That’s 5 billion euros! Even that was unsustainable because just like the door-to-door moneylender, Greece would be forced to borrow more, just to repay the interest…..and so on. That rate has now been reduced to 4% per annum – but even so, it seems extortionate.
Euro moneylending is more Shylock than Mother Theresa – plus they do want their pound of flesh – unless of course, they are called Germany , Holland or Finland. They want several kilos of of the stuff.
What European Central Banks should do is simply return their ill-gotten Greek profits or at least direct them at Europe’s crisis programme. This should not be viewed as a profit opportunity.
Too many bankers and fund managers still view Greece only a profit centre.
In keeping with the Eurozone’s habit of creating rules “on the hoof”, there are discussions to fund an escrow account to guarantee that any bailout money goes to where Euroministers decide, thereby removing all management responsibility from Greece and its politicians.
There is one major issue which has not yet been ironed out – the Aladdin Solution – the “New Bonds for Old” proposal.
There are bondholders still resisting a debt-swap , so on February 21st 2012, Greece may be forced to legislate thus forcing those errant bondholders to accept a “new-for-old” arrangement.
What started a year ago as a simple bailout has now taken an unpleasant politico-bureaucratic aspect which becomes more and more complicated with time.
The Greek people are quite rightly embarrassed by the way that they have been portrayed in the word’s media but one thing which they should always remember is that in spite of the fact that all their Eurozone friends have convinced the world that they want to help Greece – they really only want to help themselves.
They are the greedy moneylenders gathering round a desperate family – having seen an excellent opportunity for profit.
I have a feeling that the happy ending will belong to Greece.
Greece points the way.
Many have said that the defining photograph of 2011 was taken earlier this year, somewhere in or near Tahrir Square. I disagree.
For me it is this image .
It represents the normally stoic Greeks shouting “Enough!” and trailblazing in a way which points to the inevitable and over-postponed conclusion to the fast-failing Euro adventure.
Eventually, while the politicians and bankers play their increasingly convoluted monetary games, the people WILL have their say.
This weekend’s goings-on in Greece and Italy have bought maybe two or three days of calm. The usual pattern is for another crisis to surface or for another set of tragic trading figures to materialise and once again, it will be back to square one. No matter how many noughts are added to various bailout schemes, it is the structural and political issues which need to be attacked. Putting bankers and Eurowonks in charge in Greece and Italy does not guarantee anything – in fact it looks like a very high-risk strategy with as much possibility of a positive outcome as there was under the previous regimes. The basic underlying numbers are exactly the same today as they were last week.
The moves by both Greece and Italy towards a Technocratic -style government are both reassuring and frightening. The increased complexity of global economics has really exposed elected politicians as being incapable of making the right decisions, except at the most superficial level. The worrying thing is that Austerity Economics has become a modern Mantra and so has come to be viewed as a modern divine truth. In fact, Stimulus Politics is what is needed. Currently, the cure is killing the patient. The United Kingdom experience is an excellent example of a policy which clearly demonstrates that austerity measures gradually KILL economic growth but that political dogma always wins out. Greece has been an extreme example where austerity has done little more than accelerate economic collapse. Italy has followed and now French austerity economics are set to cause even more economic havoc.
October 2011 Eurozone Output
This is what they said:
1. Over the last three years, we have taken unprecedented steps to combat the effects of the world-wide financial crisis, both in the European Union as such and within the euro area. The strategy we have put into place encompasses determined efforts to ensure fiscal consolidation, support to countries in difficulty, and a strengthening of euro area governance leading to deeper economic integration among us and an ambitious agenda for growth. At our 21 July meeting we took a set of major decisions. The ratification by all 17 Member States of the euro area of the measures related to the EFSF significantly strengthens our capacity to react to the crisis. Agreement by all three institutions on a strong legislative package within the EU structures on better economic governance represents another major achievement. The introduction of the European Semester has fundamentally changed the way our fiscal and economic policies are co-ordinated at European level, with co- ordination at EU level now taking place before national decisions are taken. The euro continues to rest on solid fundamentals.
2. Further action is needed to restore confidence. That is why today we agree on a comprehensive set of additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties and take the necessary steps for the completion of our economic and monetary union. We fully support the ECB in its action to maintain price stability in the euro area. Sustainable public finances and structural reforms for growth
3. The European Union must improve its growth and employment outlook, as outlined in the growth agenda agreed by the European Council on 23 October 2011. We reiterate our full commitment to implement the country specific recommendations made under the first European Semester and on focusing public spending on growth areas.
4. All Member States of the euro area are fully determined to continue their policy of fiscal consolidation and structural reforms. A particular effort will be required of those Member States who are experiencing tensions in sovereign debt markets.
5. We welcome the important steps taken by Spain to reduce its budget deficit, restructure its banking sector and reform product and labour markets, as well as the adoption of a constitutional balanced budget amendment. Strictly implementing budgetary adjustment as planned is key, including at regional level, to fulfil the commitments of the stability and growth Pact and the strengthening of the fiscal framework by developing lower level legislation to make the constitutional amendment fully operative. Further action is needed to increase growth so as to reduce the unacceptable high level of unemployment. Actions should include enhancing labour market changes to increase flexibility at firm level and employability of the labour force and other reforms to improve competitiveness, specially extending the reforms in the service sector.
6. We welcome Italy’s plans for growth enhancing structural reforms and the fiscal consolidation strategy, as set out in the letter sent to the Presidents of the European Council and the Commission and call on Italy to present as a matter of urgency an ambitious timetable for these reforms. We commend Italy’s commitment to achieve a balanced budget by 2013 and a structural budget surplus in 2014, bringing about a reduction in gross government debt to 113% of GDP in 2014, as well as the foreseen introduction of a balanced budget rule in the constitution by mid 2012. Italy will now implement the proposed structural reforms to increase competitiveness by cutting red tape, abolishing minimum tariffs in professional services and further liberalising local public services and utilities. We note Italy’s commitment to reform labour legislation and in particular the dismissal rules and procedures and to review the currently fragmented unemployment benefit system by the end of 2011, taking into account the budgetary constraints. We take note of the plan to increase the retirement age to 67 years by 2026 and recommend the definition by the end of the year of the process to achieve this objective.
We support Italy’s intention to review structural funds programs by reprioritising projects and focussing on education, employment, digital agenda and railways/networks with the aim of improving the conditions to enhance growth and tackle the regional divide. We invite the Commission to provide a detailed assessment of the measures and to monitor their implementation, and the Italian authorities to provide in a timely way all the information necessary for such an assessment. Countries under adjustment programme
7. We reiterate our determination to continue providing support to all countries under programmes until they have regained market access, provided they fully implement those programmes.
8. Concerning the programme countries, we are pleased with the progress made by Ireland in the full implementation of its adjustment programme which is delivering positive results.Portugal is also making good progress with its programme and is determined to continue undertaking measures to underpin fiscal sustainability and improve competitiveness. We invite both countries to keep up their efforts, to stick to the agreed targets and stand ready to take any additional measure required to reach those targets.
9. We welcome the decision by the Eurogroup on the disbursement of the 6th tranche of the EUIMF support programme for Greece. We look forward to the conclusion of a sustainable and credible new EU-IMF multiannual programme by the end of the year.
10. The mechanisms for the monitoring of implementation of the Greek programme must be strengthened, as requested by the Greek government. The ownership of the programme is Greek and its implementation is the responsibility of the Greek authorities. In the context of the new programme, the Commission, in cooperation with the other Troika partners, will establish for the duration of the programme a monitoring capacity on the ground, including with the involvement of national experts, to work in close and continuous cooperation with the Greek government and the Troika to advise and offer assistance in order to ensure the timely and full implementation of the reforms. It will assist the Troika in assessing the conformity of measures which will be taken by the Greek government within the commitments of the programme. This new role will be laid down in the Memorandum of Understanding. To facilitate the efficient use of the sizeable official loans for the recapitalization of Greek banks, the governance of the Hellenic Financial Stability Fund (HFSF) will be strengthened in agreement with the Greek government and the Troika.
11. We fully support the Task Force on technical assistance set up by the Commission.
12. The Private Sector Involvement (PSI) has a vital role in establishing the sustainability of the Greek debt. Therefore we welcome the current discussion between Greece and its private investors to find a solution for a deeper PSI. Together with an ambitious reform programme for the Greek economy, the PSI should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020. To this end we invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors. The Euro zone Member States would contribute to the PSI package up to 30 bn euro. On that basis, the official sector stands ready to provide additional programme financing of up to 100 bn euro until 2014, including the required recapitalisation of Greek banks. The new programme should be agreed by the end of 2011 and the exchange of bonds should be implemented at the beginning of 2012. We call on the IMF to continue to contribute to the financing of the new Greek programme.
13. Greece commits future cash flows from project Helios or other privatisation revenue in excess of those already included in the adjustment programme to further reduce indebtedness of the Hellenic Republic by up to 15 billion euros with the aim of restoring the lending capacity of the EFSF.
14. Credit enhancement will be provided to underpin the quality of collateral so as to allow its continued use for access to Eurosystem liquidity operations by Greek banks.
15. As far as our general approach to private sector involvement in the euro area is concerned, we reiterate our decision taken on 21 July 2011 that Greece requires an exceptional and unique solution.
16. All other euro area Member States solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole. Stabilisation mechanisms
17. The ratification process of the revised EFSF has now been completed in all euro area Member States and the Eurogroup has agreed on the implementing guidelines on primary and secondary market interventions, precautionary arrangements and bank recapitalisation. The decisions we took concerning the EFSF on 21 July are thus fully operational. All tools available will be used in an effective way to ensure financial stability in the euro area. As stated in the implementing guidelines, strict conditionality will apply in case of new (precautionary) programmes in line with IMF practices. The Commission will carry out enhanced surveillance of the Member States concerned and report regularly to the Eurogroup.
18. We agree that the capacity of the extended EFSF shall be used with a view to maximizing the available resources in the following framework: • the objective is to support market access for euro area Member States faced with market pressures and to ensure the proper functioning of the euro area sovereign debt market, while fully preserving the high credit standing of the EFSF. These measures are needed to ensure financial stability and provide sufficient ringfencing to fight contagion; • this will be done without extending the guarantees underpinning the facility and within the rules of the Treaty and the terms and conditions of the current framework agreement, operating in the context of the agreed instruments, and entailing appropriate conditionality and surveillance.
19. We agree on two basic options to leverage the resources of the EFSF: • providing credit enhancement to new debt issued by Member States, thus reducing the funding cost. Purchasing this risk insurance would be offered to private investors as an option when buying bonds in the primary market; • maximising the funding arrangements of the EFSF with a combination of resources from private and public financial institutions and investors, which can be arranged through Special Purpose Vehicles. This will enlarge the amount of resources available to extend loans, for bank recapitalization and for buying bonds in the primary and secondary markets.
20. The EFSF will have the flexibility to use these two options simultaneously, deploying them depending on the specific objective pursued and on market circumstances. The leverage effect of each option will vary, depending on their specific features and market conditions, but could be up to four or five.
21. We call on the Eurogroup to finalise the terms and conditions for the implementation of these modalities in November, in the form of guidelines and in line with the draft terms and conditions prepared by the EFSF.
22. In addition, further enhancement of the EFSF resources can be achieved by cooperating even more closely with the IMF. The Eurogroup, the Commission and the EFSF will work on all possible options. Banking system
23. We welcome the agreement reached today by the members of the European Council on bank recapitalisation and funding (see Annex 2). Economic and fiscal coordination and surveillance
24. The legislative package on economic governance strengthens economic and fiscal policy coordination and surveillance. After it enters into force in January 2012 it will be strictly implemented as part of the European Semester. We call for rigorous surveillance by the Commission and the Council, including through peer pressure, and the active use of the existing and new instruments available. We also recall our commitments made in the framework of the Euro Plus Pact.
25. Being part of a monetary union has far reaching implications and implies a much closer coordination and surveillance to ensure stability and sustainability of the whole area. The current crisis shows the need to address this much more effectively. Therefore, while strengthening our crisis tools within the euro area, we will make further progress in integrating economic and fiscal policies by reinforcing coordination, surveillance and discipline. We will develop the necessary policies to support the functioning of the single currency area.
26. More specifically, building on the legislative package just adopted, the European Semester and the Euro Plus Pact, we commit to implement the following additional measures at the national level:
a. adoption by each euro area Member State of rules on balanced budget in structural terms translating the Stability and Growth Pact into national legislation, preferably at constitutional level or equivalent, by the end of 2012;
b. reinforcement of national fiscal frameworks beyond the Directive on requirements for budgetary frameworks of the Member States. In particular, national budgets should be based on independent growth forecasts;
c. invitation to national parliaments to take into account recommendations adopted at the EU level on the conduct of economic and budgetary policies;
d. consultation of the Commission and other euro area Member States before the adoption of any major fiscal or economic policy reform plans with potential spillover effects, so as to give the possibility for an assessment of possible impact for the euro area as a whole;
e. commitment to stick to the recommendations of the Commission and the relevant Commissioner regarding the implementation of the Stability and Growth Pact.
27. We also agree that closer monitoring and additional enforcement are warranted along the following lines:
a. for euro area Member States in excessive deficit procedure, the Commission and the Council will be enabled to examine national draft budgets and adopt an opinion on them before their adoption by the relevant national parliaments. In addition, the Commission will monitor budget execution and, if necessary, suggest amendments in the course of the year;
b. in the case of slippages of an adjustment programme closer monitoring and coordination of programme implementation will take place.
28. We look forward to the Commission’s forthcoming proposal on closer monitoring to the Council and the European Parliament under Article 136 of the TFEU. In this context, we welcome the intention of the Commission to strengthen, in the Commission, the role of the competent Commissioner for closer monitoring and additional enforcement.
29. We will further strengthen the economic pillar of the Economic and Monetary Union and better coordinate macro- and micro-economic policies. Building on the Euro Plus Pact, we will improve competitiveness, thereby achieving further convergence of policies to promote growth and employment. Pragmatic coordination of tax policies in the euro area is a necessary element of stronger economic policy coordination to support fiscal consolidation and economic growth. Legislative work on the Commission proposals for a Common Consolidated Corporate Tax Base and for a Financial Transaction Tax is ongoing. Governance structure of the euro area
30. To deal more effectively with the challenges at hand and ensure closer integration, the governance structure for the euro area will be strengthened, while preserving the integrity of the European Union as a whole.
31. We will thus meet regularly – at least twice a year- at our level, in Euro Summits, to provide strategic orientations on the economic and fiscal policies in the euro area. This will allow to better take into account the euro area dimension in our domestic policies.
32. The Eurogroup will, together with the Commission and the ECB, remain at the core of the daily management of the euro area. It will play a central role in the implementation by the euro area Member States of the European Semester. It will rely on a stronger preparatory structure.
33. More detailed arrangements are presented in Annex 1 to this paper. Further integration
34. The euro is at the core of our European project. We will strengthen the economic union to make it commensurate with the monetary union.
35. We ask the President of the European Council, in close collaboration with the President of the Commission and the President of the Eurogroup, to identify possible steps to reach this end. The focus will be on further strengthening economic convergence within the euro area, improving fiscal discipline and deepening economic union, including exploring the possibility of limited Treaty changes. An interim report will be presented in December 2011 so as to agree on first orientations. It will include a roadmap on how to proceed in full respect of the prerogatives of the institutions. A report on how to implement the agreed measures will be finalised by March 2012.
Ten measures to improve the governance of the euro area There is a need to strengthen economic policy coordination and surveillance within the euro area, to improve the effectiveness of decision making and to ensure more consistent communication. To this end, the following ten measures will be taken, while fully respecting the integrity of the EU as a whole:
1. There will be regular Euro Summit meetings bringing together the Heads of State or government (HoSG) of the euro area and the President of the Commission. These meetings will take place at least twice a year, at key moments of the annual economic governance circle; they will if possible take place after European Council meetings. Additional meetings can be called by the President of the Euro Summit if necessary. Euro Summits will define strategic orientations for the conduct of economic policies and for improved competitiveness and increased convergence in the euro area. The President of the Euro Summit will ensure the preparation of the Euro Summit, in close cooperation with the President of the Commission.
2. The President of the Euro Summit will be designated by the HoSG of the euro area at the same time the European Council elects its President and for the same term of office. Pending the next such election, the current President of the European Council will chair the Euro Summit meetings.
3. The President of the Euro Summit will keep the non euro area Member States closely informed of the preparation and outcome of the Summits. The President will also inform the European Parliament of the outcome of the Euro Summits.
4. As is presently the case, the Eurogroup will ensure ever closer coordination of the economic policies and promoting financial stability. Whilst respecting the powers of the EU institutions in that respect, it promotes strengthened surveillance of Member States’ economic and fiscal policies as far as the euro area is concerned. It will also prepare the Euro Summit meetings and ensure their follow up.
5. The President of the Eurogroup is elected in line with Protocol n°14 annexed to the Treaties. A decision on whether he/she should be elected among Members of the Eurogroup or be a full-time President based in Brussels will be taken at the time of the expiry of the mandate of the current incumbent. The President of the Euro Summit will be consulted on the Eurogroup work plan and may invite the President of the Eurogroup to convene a meeting of the Eurogroup, notably to prepare Euro Summits or to follow up on its orientations. Clear lines of responsibility and reporting between the Euro Summit, the Eurogroup and the preparatory bodies will be established.
6. The President of the Euro Summit, the President of the Commission and the President of the Eurogroup will meet regularly, at least once a month. The President of the ECB may be invited to participate. The Presidents of the supervisory agencies and the EFSF CEO / ESM Managing Director may be invited on an ad hoc basis.
7. Work at the preparatory level will continue to be carried out by the Eurogroup Working Group (EWG), drawing on expertise provided by the Commission. The EWG also prepares Eurogroup meetings. It should benefit from a more permanent sub-group consisting of alternates/officials representative of the Finance Ministers, meeting more frequently, working under the authority of the President of the EWG.
8. The EWG will be chaired by a full-time Brussels-based President. In principle, he/she will be elected at the same time as the chair of the Economic and Financial Committee.
9. The existing administrative structures (i.e. the Council General Secretariat and the EFC Secretariat) will be strengthened and co-operate in a well coordinated way to provide adequate support to the Euro Summit President and the President of the Eurogroup, under the guidance of the President of the EFC/EWG. External expertise will be drawn upon as appropriate, on an ad hoc basis.
10. Clear rules and mechanisms will be set up to improve communication and ensure more consistent messages. The President of the Euro Summit and the President of the Eurogroup shall have a special responsibility in this respect. The President of the Euro Summit together with the President of the Commission shall be responsible for communicating the decisions of the Euro Summit and the President of the Eurogroup together with the ECFIN Commissioner shall be responsible for communicating the decisions of the Eurogroup.
Consensus on banking package
1. Measures for restoring confidence in the banking sector (banking package) are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector. These measures should address: a. The need to ensure the medium-term funding of banks, in order to avoid a credit crunch and to safeguard the flow of credit to the real economy, and to coordinate measures to achieve this. b. The need to enhance the quality and quantity of capital of banks to withstand shocks and to demonstrate this enhancement in a reliable and harmonised way.
2. Guarantees on bank liabilities would be required to provide more direct support for banks in accessing term funding (short- term funding being available at the ECB and relevant national central banks), where appropriate. This is also an essential part of the strategy to limit deleveraging actions.
3. A simple repetition of the 2008 experience with full national discretion in the setting-up of liquidity schemes may not provide a satisfactory solution under current market conditions. Therefore a truly coordinated approach at EU-level is needed regarding entry criteria, pricing and conditions. The Commission should urgently explore together with the EBA, EIB, ECB the options for achieving this objective and report to the EFC.
Capitalisation of banks
4. Capital target: There is broad agreement on requiring a significantly higher capital ratio of 9 % of the highest quality capital and after accounting for market valuation of sovereign debt exposures, both as of 30 September 2011, to create a temporary buffer, which is justified by the exceptional circumstances. This quantitative capital target will have to be attained by 30 June 2012, based on plans agreed with national supervisors and coordinated by EBA. This prudent valuation would not affect the relevant financial reporting rules. National supervisory authorities, under the auspices of the EBA, must ensure that banks’ plans to strengthen capital do not lead to excessive deleveraging, including maintaining the credit flow to the real economy and taking into account current exposure levels of the group including their subsidiaries in all Member States, cognisant of the need to avoid undue pressure on credit extension in host countries or on sovereign debt markets.
5. Financing of capital increase: Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. Banks should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support , and if this support is not available, recapitalisation should be funded via a loan from the EFSF in the case of Eurozone countries. State Aid
6. Any form of public support, whether at a national or EU-level, will be subject to the conditionality of the current special state aid crisis framework, which the Commission has indicated will be applied with the necessary proportionality in view of the systemic character of the crisis
I pointed out a few days ago that it seemed as if there was an orchestrated effort by politicians and bankers to put-out weekly or bi-weekly “Statements of Intent” — purely in order to placate the Markets as well as to postpone the inevitable collapse of the Euro. That means NOT actually doing anything but promising to do something, sometime in the future. It’s the new “Weapon of Choice” for politicians whose ideas have run out.
THIS week is shaping up as a very special example of this comparatively new phenomenon.
Today, the Markets have responded well to yet more wind and wee from a politician. So whose turn was it THIS time?
None other than European Commission President himself – Jose Manuel Barroso!
Let’s have a close look at what he said and maybe ascertain whether his statement actually contains any “doing” words.
He said that he will put forward moves to tackle the Eurozone crisis. “Put forward”? “Moves”? What moves?
He will urge the Eurozone countries to issue joint bonds. “Urge”? “Joint Bonds”? How will he “Urge”?
Unsurprisingly, Italian Finace Minister Giulio Tremonti supports Eurobonds. Italy is vastly over-borrowed – to the extent that its attempt to borrow even more from China was given very short shrift by the Chinese – even though the Italians were offering security.
The fact that George Soros (no less) has backed the concept of Eurobonds was weaved into the equation. Ancient George’s ONLY motivation is to save Uncle Sam – not Greece or Italy.
The main player in the Eurofarce , Germany, is NOT even remotely interested in the Eurobond because, effectively, it with be the “Deutschebond”. German Charity.
Barosso wants a United States of Europe. Pure and Simple.
He went on:
“I want to confirm that the Commission will soon present options for the introduction of Eurobonds.” Soon? How “soon”, Jose? “Options”? WTF?
Jose does NOT give up easily: “Some of these could be implemented within the terms of the current treaty, and others would require treaty changes.” “Treaty changes“, Jose?
That’s lots of meetings and could take years. That might just keep the markets interested!
He really declared his hand when he said that “the measure” on its own was not enough to solve the Eurozone debt crisis. (What “measure”, Jose? So far,we’ve only heard Eurobullshit)
He said Europe needed a “Federalist Moment” to rescue it. He argued that the solution to the crisis would have to involve the “Community method” which presumably, like the Rhythm Method involves someone being screwed. For instance: the Taxpayer and the Investor?!
( Isn’t it amazing how few NUMBERS there are in a statement about fiscal deficits?)
The Greek Entry.
Last week I predicted that it was Sarkozy’s turn to deliver yet another mealy-mouthed statement. Looks as if it’s this afternoon!
The question is CAN he save the French Banks whilst convincing an increasingly cynical public and sceptical markets that it’s all about saving Greece?
Money Market Funds have been selling French Bank Shares for about a year, during which time they have reduced their holding in French banks by about 50%.
After Sarkozy (or Angela Merkel) tells us that Greece is “doing the right things” or that ” it is making good progress“, it will be interesting to see what the markets make of it all.
The MOST likely outcome of today’s meeting between Sarkozy, Merkel and Greek Premier Papandreou is a statement indicating that Greece needs more time.
The Euro and the Eurozone both need time – another commodity which is fast disappearing.
Today’s summit has an interesting sub-plot. Rating agency Moody’s has just downgraded France’s two major banks. Credit Agricole has been busted down from Aa1 to Aa2 and Société Générale from Aa2 to Aa3.
Once again, this has come as both a surprise and relief to the experts because the downgrades were “not as bad as expected“. It seems that these days, NOTHING is as expected.
For politicians and most economists, these are indeed The Days of Mystery!
The seriousness of not-only the Greek but the entire Eurozone situation is exemplified by the fact that The US treasury secretary, Tim Geithner, will be attending Friday’s meeting of EU finance ministers.
Even the Americans can see that Greece is the No1 domino!
The hard fact is that Greece ought never have been allowed to join the Euro. It was a predictable accident waiting to happen.
As many politicians will attest – especially those who attended boarding school, the “Greek Entry” was always going to be painful.
After three years, the scales have fallen from our eyes and finally, the light has flooded in. It has been long time coming but suddenly – an Epiphany!
The politicians, bankers, economists and even the Central Bank astrologers have absolutely NO IDEA as to how to deal with the gradually building waves of a massive economic crisis which is about to sweep the world. They’ve been gambling that random fiscal and economic measures would somehow provide a solution and make everything well again!
Money has been printed and distributed, bonds have been issued, promises have been made, false political visions have been shared and yet the self-amplifying problem continues to self-amplify.
Some of us finally realised that the Eurozone had run out of ideas when the German authorities temporarily banned “naked short selling” of Eurobonds. The action had absolutely NO effect. However, it did demonstrate that the politicians (who initially blamed the bankers for the pit of shit that they had help to create) were now turning a rheumy eye on everyone’s new bête noire – the SPECULATORS!
Bankers were greedy bastards with large bonuses but now it was the turn of the “casino-banking” speculators. Spit!
In any crisis, it is always a good idea to look for the root or initial cause. In the case of the Euro and the Eurozone it was an ill-conceived plan which , without tighter integration of fiscal policies between states was doomed to failure.
Make no mistake, the increasingly pathetic bleating of the French and Germans in respect of the looming Greek collapse and default has absolutely NOTHING to do with Greece.
It is all about their joint delusive attempt to prevent the inevitable collapse of their banks – which are holding billions in Greek IOUs. Nothing at all to do with Franco-German altruism.
As the French and Germans intertwine, hug each other and panic, their assault on the “speculators” and the markets , although understandable is also ironic. Why? Because eventually, the Western-European begging bowl will be waved at the markets and the “speculators” – in the vain hope that they will lend the impoverished Eurozone BILLIONS so that the sacred Euro cow can be reprieved.
Biting the hand that could feed you is never a good plan but currently, the markets are dealing with increasingly desperate politicians who have painted themselves into a Euro corner with absolutely NO way out.
Euro and Western economies in general are in debt – both in the public and private sectors. Several countries are bankrupt.
The only REAL solution is GROWTH which unfortunately is NOT achieved by insisting that the weakest economies attempt to restore growth through the unusual and meritless medium of The Austerity Plan.
Austerity gains you a lot of points with the rating agencies, makes it easier for you to borrow more but in the long-term, it is NOT a sustainable strategy – as we in the West are ALL about to discover. Overborrowing is what caused the problem in the first place.
The economic affliction is the mire of public and private sector debt and uncompetitiveness into which the weaker economies of southern Europe have sunk.
The cure should be to create an atmosphere for economic growth.
Unfortunately, the generally accepted (unproved but imposed) speculation is to force broken countries to try and balance their budgets and restore economic growth whilst slashing expenditure and demotivating taxpayers through increased unemployment, inflation and the resultant decimation of tax-revenues.
It will NOT be long before the inevitable wake-up call is heard!
Casino economics does not work.
Banks? It won’t be long!!
When the big boxes of money arrived in Libya yesterday, I bet that there were several European states who were slavering and wishing that someone would send them a box too!
Especially Greece. Plus other states who don’t really want to admit it!
Greece has been back to the well for another 109 billion Euro bailout. That bailout could well be the last one because the well is now well and truly dry.
Even quiet and up-to-now compliant Finland is becoming a little bit fractious and will not contribute any more money to the bottomless pit that is Greece without a Charge on Greek assets. The Finns want collateral – and who can blame them?
The German electorate and many politicians are also beginning to voice their displeasure at having to hand over vast volumes of cash to the Greeks, no doubt followed by others.
Quite rightly, German Chancellor Angela Merkel insists she won’t be “blackmailed” into backing Eurobonds and the Germans have every reason to be worried! If they put their national balance sheet at risk just to support countries like Greece and Ireland, Germany’s borrowing costs would be driven up by an unsustainable additional 50 billion euros!
The simmering Eurocrisis could explode at virtually any moment because the politicians’ “Let’s wait and see” tactics have failed.
That is what sent European bank stocks lower today. They tanked!
The other day, Warren Buffett threw $5 billion at “near-death” Bank of America. In spite of Warren’s munificence, the bank has now been asked to sort out any potential problems. The bank’s fire sale continues with them now trying to offload their non-profitmaking Countrywide lending unit.
Does the Fed know something that we don’t?
America and Europe do NOT have a liquidity crisis! It is a MAJOR SOLVENCY problem.
Banks do not have enough capital to absorb losses on all the European sovereign debts that they are now loaded down with.
Pan-Western bank failures are now inevitable!!
The politicians? They will be doing what they do best.
Observing, having meetings and telling us not to worry.
p.s Sorry of this post does not make total sense. It was typed in a hot un-airconditioned dump on a Blackberry and then emailed for tarting up. But hopefully, you get the gist.
Here is an example of what can be done in an emergency, without the fuss and the “headless chicken” organisational ability demonstrated by the Brits, led by William Hague.
Greece will evacuate up to 15,000 Chinese nationals by ship from Libya, and is considering requests from other countries to help ferry out their nationals.
The Chinese would be transferred by ferries to the southern Greek island of Crete before being flown on to China, a Public Order Ministry statement said. Officials were unable to provide a time schedule for the evacuation.
“The Chinese government has chartered three Greek ships that will go to Libya to repatriate 13,000-15,000 Chinese, as well as the Greeks in Benghazi,”Foreign Ministry spokesman Grigoris Delavekouras said.
The Public Order Ministry said it was examining requests for help from other countries.
“We are considering … the requests for assistance by other countries to evacuate their nationals from the area,” the ministry said in a statement.
Egypt has also asked for the help of Greek ships to ferry its nationals from Tripoli to the Egyptian port of Alexandria.
Another Greek merchant ship is expected to evacuate some of the 300 Greek nationals from the port of Ra’s Lanuf , the Foreign Ministry said, while two military transport planes are also on standby at a base near Athens.
“The ship will take some Greeks and, if possible, a few Europeans,”Delavekouras said. “It has a small capacity, as it is a merchant vessel, not a ferry. The planes are on standby, and have not yet received landing permission, to pick up the other Greeks,” he said.
Deputy Foreign Minister Dimitris Dollis said the government is hoping to use four Libyan airports for the possible air evacuation, with Greeks stranded up to 350 kilometers (220 miles) from each airport.
“The situation is very variable and our basic issue is who is in control of what in the country so that our landing and overflight requests are answered,”Dollis said. “We have to try 15-20 times just to get through on the phone and we have multiple calls to make to a large number of people.”
Two ferries evacuating some 4,500 Chinese nationals from Libya are heading for the island of Crete.
The Greek-flagged Hellenic Spirit and Olympic Champion are scheduled to arrive at the port of Iraklio at 1200 GMT. Evacuees are then due to leave the Greek island on specially chartered flights.
Derek Gatopoulos, Associated Press in Athens contributed to this story