Europe

[monster_gardener]

It's Time To End the Greek Rescue Farce
A Commentary By Stefan Kaiser

Whether it be an escrow account or a budget commissioner, the latest demands by Germany show just how absurd negotiations over Greece's future have become. It is high time to bring an end to this tragicomedy.

For the past two years, Greece has wrangled with the euro-zone states and the International Monetary Fund (IMF) over its so-called "rescue." Austerity measures have been agreed to, aid has been paid and private creditors have been forced to accept "voluntary" debt haircuts. Despite all this, Greece is in even worse shape today than it was then. Its economy is shrinking, the debt ratio is rising and the country and its banks have been cut off from capital markets. There isn't even the slightest sign that the situation might improve. Something has gone very wrong with this rescue.

But none of the protagonists seem to have grasped this. They continue to negotiate as if things are business as usual, they let one "final ultimatum" after the other pass and they persistently fail to realize that their discussions have started to verge on the absurd. It would be a lot better to end this farce.

For weeks now, the Greek government has been negotiating with private creditors and the troika comprised of the IMF, European Union and European Central Bank (ECB) over a second bailout package. But it is already clear that this aid package will not save the country. It appears it will only delay a Greek insolvency -- and it will serve to create new hardships for the country's population.

It is time for politicians to admit that their carrot and stick strategy has failed. The idea that the country can be freed from its debt quagmire though austerity programs and aid pledges tied to conditions just isn't going to work. It won't even work if private creditors forgive part of the country's debt.

Broken Promises

For months, Greek government politicians as well as the so-called rescuers in Berlin, Paris and Brussels have all been deceiving themselves. Each supposedly final rescue package is followed by yet another, and austerity pledges aren't being adhered to.

That has a lot to do with domestic political considerations. German Chancellor Angela Merkel and French President Nicolas Sarkozy must convey to their voters that they have the situation and, especially the Greeks, under control. Meanwhile, the government in Athens must, out of self-preservation, limit the burdens to its own people as much as possible.

That's why both sides repeatedly agree to promises that everyone knows they will not be able to keep. The current rescue package, for example, officially agreed at the euro summit at the end of October, already has to be improved because it has become too small.

The Greek economy is shrinking faster than assumed. And the austerity plan Greece approved last summer under pressure from its euro-zone partners is also failing to live up to expectations. That's no wonder, either, because €50 billion of the €78 billion in total savings pledged was tied to proceeds from privatizations that, not surprisingly, have failed to generate the profits expected.

Out of Thin Air

The truth is that it must have been obvious to all parties concerned, including the Germans, that the figures were pulled out of thin air. What kind of investor would invest so much money in a country that, for the foreseeable future, will be stuck in a serious economic depression?

The supposed rescue efforts have culminated in the latest German proposals. The German government would like to send a "budget commissioner" to Athens to keep an eye on the Greeks. If that doesn't work, then the Germans also want, at the very least, to be able to impound Greek accounts if they don't pay back their debts through an escrow account.

The suggestions have justifiably provoked outrage. Quite apart from the humiliation these measures would entail for the Greeks, Athens would almost certainly find a way to circumvent them. In the end, Germany would wind up turning an entire nation into its enemy without even gaining anything.

Greece Must Go Bankrupt

Perhaps, the Greece rescuers on both sides of the negotiating table should try being honest for a change. Here's the truth: If the country is to lastingly reduce its mountain of debt and, at some point, be able to borrow money on the capital markets again, then it needs a comprehensive debt haircut. In other words, it needs to go bankrupt.

And it's not just private creditors who will have to forego a large part of their outstanding Greek debts. It is also other European countries and the European Central Bank. That would be expensive for taxpayers across Europe, and it would also be economically risky. Indeed, no one knows what consequences a Greek bankruptcy would have for other crisis-ridden countries like Portugal, Ireland or Italy. But at least it would be an honest solution.

Of course, things wouldn't stop there. The euro-zone states would also have to build a bigger firewall around the remaining crisis countries in order to prevent contagion. They would have to help some banks that get into trouble as a result of a debt cut. And they would have to provide Greece with a real opportunity to get back on its feet and start growing under its own steam -- in other words, a kind of Marshall Plan.

All this would be very expensive, and German taxpayers would also be forced to do what they have feared from Day One -- which is to pay for Greece. But this solution has two major advantages. The payments would be limited, and they would actually help Greece.

And unlike everything that has been negotiated up until now, the solution would also be worthy of being called a rescue package.

http://www.spiegel.de/international/eur ... 19,00.html

From this article on Der Spiegel we may conclude that some Germans are actually intelligent.

Thank you Very Much for your post, Endo.

Interesting article.........

Mentioned the Marshall plan..........

AIUI some of that such as the CARE program was out of the goodness of US/Uz hearts but much was also because the Brits & US/Uz did not want the Soviets to get Western as well as Eastern Europe....... that old the Western Democracies against the Soviet Killer Commies....... that saved the Germans from being forcibly pastoralized as contemplated during the war......

If we/uz could turn back time, think we could get quite a bit of ME support for doing that and handing much of Germany to the Jews and Gypsies etc........... including the Gypsy below

mEszTzdUMcY


But since that didn't happen........... and Germany is again full of Macht & powerful...........*

Is it in Germany's economic interest to save Greece?

Buy or take in exchange for debt, some of the good bits like Mickey Mouse oops I mean Mykonos as vacation land for gay Germans......

What is the threat that might force Germany to do something very expensive that it doesn't want to do?

Is it just loss of the Euro/EU dream?

*Phillip K. Dick predicted this............

[Endovelico]

From an opinion poll in Greece:

POLLS: An opinion poll released last night shows Pasok trailing in the opinion polls at 8%, putting it in fifth place, and a neo-Nazi party on the 3% threshold of entering parliament. In the Public Issue/Kathimerini poll, New Democracy leads with 31%. In second place, at 18%, is Fotis Kouvelis’ Democratic Left, which currently only has four MPs in parliament. It is followed by the Communist Party (KKE) at 12.5%, the Radical Left Coalition (Syriza) at 12%, Pasok at 8%, Popular Orthodox Rally (Laos) at 5%, the EcoGreens at 3.5% and the openly fascist Golden Dawn (Chrysi Avyi) at 3%. With its 2%, the Democratic Party of Dora Bakoyannis would not have enough to enter parliament. Other parties received 5% in total. The above figures exclude the 30% of respondents who said they intend to abstain from the elections.

In other words, parties to the left of Pasok get 42.5% of the vote. Elections in April will be interesting to follow.

[YMix]

I want to see a Neo-Nazi party with an anti-German platform. I'd laugh my ass off.

[monster_gardener]

I want to see a Neo-Nazi party with an anti-German platform. I'd laugh my ass off.

Thank you VERY MUCH for your post, Ymix.

That is a hilarious point

But maybe not impossible.................

IIRC, near the end of the war, Hitler felt that the German people had betrayed him and tried to go scorched earth taking Germany down with him.

So Hitler at the end could be considered anti-German...............

AIUI Albert Speer disagreed with this and worked to sabotage Hitler's Nero Decree.........

http://en.wikipedia.org/wiki/Nero_Decree

[AzariLoveIran]

I want to see a Neo-Nazi party with an anti-German platform.

Nazi , an expression invented by Brits, not an exclusive German phenomena

Neither fascism

Nazism

. . a unique variety of fascism that incorporates biological racism and antisemitism.

Biological racism ? ? Antisemitism ? ?

Anti Islam or anti that lavender Arab , not Nazism YMix ?

Is Newt Gingrich attack on Islam not Nazism

but

Ahmadinejat saying there must be a free election in occupied Palestine he suddenly Hitler and Nazi as that Canadian "Arschlecker" said.

come on

We already living in full blown Nazism

shieeet

.

[monster_gardener]

I want to see a Neo-Nazi party with an anti-German platform. I'd laugh my ass off.

Thank you again Very Much for your post, Ymix.

I'd laugh my ass off

"Need" to get that "smiley"

Gotta keep up with the Spenglers

8) :loco: :gaah: :roflmao: :laff:

[Endovelico]

A cartoon by Stathis Stavropulos. The EU's bean counters have discovered there are 33 beans in the soup, when there should only be 28. The five extra are to be handed over to the Germans.

[Parodite]

It's Time To End the Greek Rescue Farce
A Commentary By Stefan Kaiser

Whether it be an escrow account or a budget commissioner, the latest demands by Germany show just how absurd negotiations over Greece's future have become. It is high time to bring an end to this tragicomedy.

Excellent. Greece needs to go bankrupt indeed, have most of its debt off its back and leave the Eurozone. I don't mean that as something cynical; it is what a number of economists are saying is in the best interest of Greece.

One currency for Europe is a disaster. Europe can be divided into blocks perhaps, where countries with similar economies could decide on a common currency - but it is not even necessary. One currency per country is stil a valid option. The Euro cannot be undone so easily - it will take years of preparation and years of implementation of a new financial ecology with different currency zones. But then you have a more organic and flexible financial landscape that is better for everybody in the long run.

The Euro is best for banks, that's why they pushed the idea to begin with. It is not good for Greece, but also not for Germany either since a lot of German taxpayer money will evaporate; losses have to be accepted. It was just a bad day in the casino.

I don't agree with Endo that other Europeans owe Greece, Portugal, Ireland anything. Local/national business and initiatives by the Greek will create the healthy wealthy society they want and deserve. They should just be freed from the Euro around their necks, but also from a few bad habits like curruption in politics and a cancerous government that eats potential and money away from the people who want to make and create life. But that is entirely their own problem and business.

[Endovelico]

I don't agree with Endo that other Europeans owe Greece, Portugal, Ireland anything. Local/national business and initiatives by the Greek will create the healthy wealthy society they want and deserve. They should just be freed from the Euro around their necks, but also from a few bad habits like curruption in politics and a cancerous government that eats potential and money away from the people who want to make and create life. But that is entirely their own problem and business.

The EU treaty specifically states that the task of lifting less developed member-states to the level of development of their more developed partners is a joint one. It was seen by the European founding fathers, back in 1957, as the quid pro quo of liberalization. Nowadays the richer countries want to continue enjoying the benefits of free trade, without the responsibility of assisting their less developed partners. That's just not acceptable and if they insist on their selfish posture they will end up by causing a split in Europe: northern countries to one side, southern ones to the other. Then they will finally realize that most of their northern prosperity was the result of siphoning up money from their poorer partners.

[Parodite]

The EU treaty specifically states that the task of lifting less developed member-states to the level of development of their more developed partners is a joint one. It was seen by the European founding fathers, back in 1957, as the quid pro quo of liberalization. Nowadays the richer countries want to continue enjoying the benefits of free trade, without the responsibility of assisting their less developed partners. That's just not acceptable and if they insist on their selfish posture they will end up by causing a split in Europe: northern countries to one side, southern ones to the other. Then they will finally realize that most of their northern prosperity was the result of siphoning up money from their poorer partners.

What you say makes no sense to me. You seem to believe that wealth of a) has to come at the cost of some poorer b) by default, and that corrective measures are always needed to compensate for the injust differences.

[Endovelico]

The EU treaty specifically states that the task of lifting less developed member-states to the level of development of their more developed partners is a joint one. It was seen by the European founding fathers, back in 1957, as the quid pro quo of liberalization. Nowadays the richer countries want to continue enjoying the benefits of free trade, without the responsibility of assisting their less developed partners. That's just not acceptable and if they insist on their selfish posture they will end up by causing a split in Europe: northern countries to one side, southern ones to the other. Then they will finally realize that most of their northern prosperity was the result of siphoning up money from their poorer partners.

What you say makes no sense to me. You seem to believe that wealth of a) has to come at the cost of some poorer b) by default, and that corrective measures are always needed to compensate for the injust differences.

Wealth and development are mostly due to circumstances, not to any moral or intellectual superiority. That's why, centuries ago, Portugal, Spain and the Italian Republics were a lot richer and more developed than those poor slobs in Britain, Germany or Scandinavia. Jean Monet and Robert Schuman, among others, knew that in order to have southern countries accepting free trade, there should be a commitment by the richer countries to help the poorer ones becoming more competitive. No handouts, but technical and financial investment. Lately the richer countries decided to forget about that commitment. They tricked their poorer partners into accepting free trade under false pretenses, and now they just refused to honour their commitment. That's both dishonourable and stupid. It will lead to a split in Europe and, a few decades from now, when southern European firms are at least as competitive as their northern European counterparts, northern Europe may go back to being its old irrelevant frozen self.

[Parodite]

What you say makes no sense to me. You seem to believe that wealth of a) has to come at the cost of some poorer b) by default, and that corrective measures are always needed to compensate for the injust differences.

Wealth and development are mostly due to circumstances, not to any moral or intellectual superiority.

Agreed. But it also cannot be denied that there were crucial individuals who, perhaps by a twist of fate or random luck, passionately put a lot of effort into their accomplishments. It is not really important whether or not at some quantum level all their brain activity and behavorial output also should be label as mere chance. What matters is to indentify a culture of accomplishment, where people learn from the things that others learned before them and move forward even further.

That's why, centuries ago, Portugal, Spain and the Italian Republics were a lot richer and more developed than those poor slobs in Britain, Germany or Scandinavia. Jean Monet and Robert Schuman, among others, knew that in order to have southern countries accepting free trade, there should be a commitment by the richer countries to help the poorer ones becoming more competitive. No handouts, but technical and financial investment.

Technology is practically open-source now. Financial investment, and I made that point already some eons ago, is not a handout indeed. It is based on rational assesments if money I lend to you will generate economic activity and value enough, so that I also am rewarded for the risk I took lending you my money so I can get it back+interest. Interest is just the rent you pay for using my car to speak. Now here comes the tricky part: if it is my money, it is me who decides 1) if I lend it to others or not, and 2) to whom if I do, and under what conditions; we might come to a deal. This also means that I don't give a rats ass what people said 80 years ago about my money, what i should or shouldn't do with it.

Lately the richer countries decided to forget about that commitment. They tricked their poorer partners into accepting free trade under false pretenses, and now they just refused to honour their commitment.

I don't understand what you are referring to here.

That's both dishonourable and stupid. It will lead to a split in Europe and, a few decades from now, when southern European firms are at least as competitive as their northern European counterparts, northern Europe may go back to being its old irrelevant frozen self.

Any good woman or man with a good plan that is promising enough will get money from any bank to do and create what it wants to create and add value to economy and society. And it helps to have a good book keeper. People who understand this simple fact usually get much further than those thinking agreements too old to remember should dictate who is Santa, what the gifts should be and who is entitled to get them.

[AzariLoveIran]

.
Wealth and development are mostly due to circumstances, not to any moral or intellectual superiority.
.

Some truth to that

.
. . in order to have southern countries accepting free trade, there should be a commitment by the richer countries to help the poorer ones becoming more competitive. No handouts, but technical and financial investment.
.

agree and good idea .. true, for a union, European union, economic (and financial) union, richer & advanced nations (Germany etc) should lift the poorer nations by investing in training and R&D in those nations .. this, down the road, in German interest

But all this easy to say, implementing another issue

.
Lately the richer countries decided to forget about that commitment.

They tricked their poorer partners into accepting free trade under false pretenses, and now they just refused to honour their commitment. That's both dishonourable and stupid.
.

IMO, issue was not trick, but , Europe, in real sense, was not "united"

Eliminating the frontiers did not mean uniting Europe .. nationalist self interest, sentiments, still exists as before .. there is no competition between California and Oregon, but there is between French and Germany.

so, sentiment was, buyers be aware, who cares

.
It will lead to a split in Europe and, a few decades from now, when southern European firms are at least as competitive as their northern European counterparts, northern Europe may go back to being its old irrelevant frozen self.
.

unlikely


.

[monster_gardener]

.
Wealth and development are mostly due to circumstances, not to any moral or intellectual superiority.
.

Some truth to that

.
. . in order to have southern countries accepting free trade, there should be a commitment by the richer countries to help the poorer ones becoming more competitive. No handouts, but technical and financial investment.
.

agree and good idea .. true, for a union, European union, economic (and financial) union, richer & advanced nations (Germany etc) should lift the poorer nations by investing in training and R&D in those nations .. this, down the road, in German interest

But all this easy to say, implementing another issue

.
Lately the richer countries decided to forget about that commitment.

They tricked their poorer partners into accepting free trade under false pretenses, and now they just refused to honour their commitment. That's both dishonourable and stupid.
.

IMO, issue was not trick, but , Europe, in real sense, was not "united"

Eliminating the frontiers did not mean uniting Europe .. nationalist self interest, sentiments, still exists as before .. there is no competition between California and Oregon, but there is between French and Germany.

so, sentiment was, buyers be aware, who cares

.
It will lead to a split in Europe and, a few decades from now, when southern European firms are at least as competitive as their northern European counterparts, northern Europe may go back to being its old irrelevant frozen self.
.

unlikely


.

Thank you Very Much for your post, Azari.

I agree with much but ................

there is no competition between California and Oregon,

Am not so sure about that.......... In fact I know that there is a LOT of competition between various State as to who is going to get a factory located in which state: tax breaks, roads and utilities built, utility rates etc............

Sometimes it works well for the industry and State........ Sometimes not..........

A good example: Japanese car factories in the US........... Benefits for all...........

A classic bad example IMVVHO is how billionaire sports team owners demand that new plush stadiums be built to suit them or they will relocate to a State and City willing to do it....

[Endovelico]

Lately the richer countries decided to forget about that commitment. They tricked their poorer partners into accepting free trade under false pretenses, and now they just refused to honour their commitment.

I don't understand what you are referring to here.

Productive, competitive countries needed trade to be as free as possible, in order to have access to a larger market and become richer. They had to convince less competitive countries to open up their markets, while such freeing of trade might not be to their advantage. Being in a position of having to import more than you export may sound attractive at first, but sooner or later will lead to your ruin. As we are witnessing in Europe. So, to compensate for such opening up one had to promise less developed countries that enough money and technology would be channeled to their economies, so that in the not too far future they would be as competitive as their richer partners, without which no free trade may endure for long. As a result of such understanding less developed countries opened up their markets, but the richer countries soon decided to forget all about their commitment. Permanent trade imbalances have now led to some European countries being bankrupt, and they are being accused of being lazy and corrupt, for which they should be punished. If that's northern European countries last word, then southern European countries should leave the EU and set up their own union, with their own (less valued) currency, in order to establish the balance that should have been created in a joint effort.

[YMix]

Permanent trade imbalances have now led to some European countries being bankrupt, and they are being accused of being lazy and corrupt, for which they should be punished.

In the interest of fairness it should be noted that the authorities of certain countries are lazy, corrupt and incompetent. The Romanian state apparatus, for instance, has managed to use slightly more than 6% of the development funds offered by Western Europe since 2009. That's an appallingly low figure.

Naturally, it's not just the government's fault. Those who built up their farms with SAPARD funds (2006-2009) do not want competition and, so, they bribe town and county-level officials to deny funding to new applicants.

[Endovelico]

Permanent trade imbalances have now led to some European countries being bankrupt, and they are being accused of being lazy and corrupt, for which they should be punished.

In the interest of fairness it should be noted that the authorities of certain countries are lazy, corrupt and incompetent. The Romanian state apparatus, for instance, has managed to use slightly more than 6% of the development funds offered by Western Europe since 2009. That's an appallingly low figure.

Naturally, it's not just the government's fault. Those who built up their farms with SAPARD funds (2006-2009) do not want competition and, so, they bribe town and county-level officials to deny funding to new applicants.

While that is true, please note that Community funds are exclusively meant for infrastructures, not to build up productive capacity. So, we made roads, bridges, hospitals, railroads, but no factories. Our partners have been very careful about denying us the means to become competitive...

[YMix]

Not exactly true. Plenty of EU funds available for small and medium-sized enterprises and farmers.

[AzariLoveIran]

.

. . Community funds are exclusively meant for infrastructures, not to build up productive capacity. So, we made roads, bridges, hospitals, railroads, but no factories. Our partners have been very careful about denying us the means to become competitive ..

.

Siemens and VW factories in Portugal would have helped not much to make Portugal competitive .. they would have been only jobs .. it would have helped a bit (though counterproductive in long run), but would have not made Portugal wealthy .. that is what is happening in Spain

wealth is created in R&D department

and , yes, I agree with you Endo, the rich European countries, like Germany, should have financed and promoted and help to bring about and jump start a pure Portuguese industry, something that Portuguese could excel in and be among the best and so be competitive

No, that did not mean necessarily, competing with German industry.

agree, this should be done but did not happen

why not ?

because European union is not a "union" in real sense

now that German realizes that destiny of Portugal & Greece etc etc directly effect Germany, things might change

How change ?

well , Germany must take care of promoting Portuguese and Greece and Irish and and economy and industry so that they become fundamentally strong, the way you are advocating .. but .. in the process, to do this, Germany needs more power to shape Portuguese economy and and and

That is where you come in and shout NAZI and and and

well, Endo, no taxation without representation .. no pain no gain


.

[Endovelico]

Not exactly true. Plenty of EU funds available for small and medium-sized enterprises and farmers.

Yes. But for what purpose? Maybe buying a tractor or training workers, or buying computers. All of which is useful, but falls short of what was necessary to make those firms competitive on the world markets. Anything which would make a difference was labeled by the EU as a forbidden state subsidy...

[YMix]

I don't think Romanian entrepreneurs should be given a lot of money at once. Just sayin'.

Anyway, people who want to build factories usually go to banks or investment funds.

[Hans Bulvai]

If I were the Germans, I would cut Greece off.

http://www.spiegel.de/fotostrecke/fotos ... 78449.html

[Typhoon]

26dtpOZw0do

[Endovelico]

The Eurozone: Self-Inflicted Depression
By Mark Weisbrot and Alex Doherty - February 09, 2012

The IMF has recently called for governments to slow the pace of their budget cuts - why do you think that states such as the UK and Germany are pursuing austerity measures with such little regard to the broader impact on their economies?

Well it is always difficult and rather speculative to explain the motivations of political actors, especially when they do things that are not obviously in their own political interest. I mean, the economic crisis in Europe has already toppled the governments of the UK, Ireland, Greece, Spain, Portugal, and Italy. So, one would think that governments in power now would want to be re-elected, and that the best way to get re-elected would be to bring about an improvement in the economy. Yet they are mostly pursuing policies that can be expected to make their economies worse, and even risking a more serious crisis. How can this be explained?

I think it is different in each country, but it is generally some combination of ideology, politics, incompetence, and of course powerful interests who want certain things. In Germany, things are not so bad. Unemployment is at 5.5 percent, lower than it was before the world recession. The standard analysis in the financial press is that the Germans haven’t recovered from the hyper-inflation of 85 years ago, and they are therefore more afraid of inflation than they are of having a second European recession in less than three years. And of course there is all the usual stuff about how Germans and other northern Europeans don’t want to “bail out” other countries, especially southern Europeans who they see as not sharing their work ethic, fiscal prudence, etc.

Personally, I think these views are highly exaggerated. For one thing, whatever the prejudices of any people – and I think there is also a lot of sentiment against bailing out the banks that goes unnoticed – it is not the people that are making these decisions. Policy for the eurozone is currently being made by the so-called Troika, which includes the European Central Bank, the European Commission, and the IMF – in that order of importance. The ECB is really the main player here, because they hold the key to resolving the crisis. In fact, they could resolve it quite quickly if they wanted to, simply by announcing that they would set a target interest rate for Italian and Spanish bonds, and pledge to buy those bonds as necessary to keep their interest rates below, say 3 percent. Why don’t they do this? The answer to this question was made clear in December of last year, when Mario Draghi, newly appointed head of the ECB, indicated that he might take steps in this direction, “if political leaders took more radical steps to enforce spending discipline among members.” (NYT) But within a day or so he walked back from his remarks.

So by then the ECB’s strategy was clear: they weren’t going to end the crisis because if they did, they wouldn’t have the leverage to force Italy, Spain, and other countries to adopt “reforms” – like raising the retirement age, shrinking the size of government, privatizations and other unpleasant things that people would never vote for.

So the ECB, together with the other two members of the Troika, is playing a somewhat risky game. On the one hand, they want to use the threat of allowing bond yields for Spain and Italy to rise to unsustainable levels, in order to force these governments to do as they are told. On the other hand, if they really allowed this to happen for a certain length of time, it would cause a financial meltdown in Europe. Remember, Italy and Spain are “too big to fail,” in terms of the size of their public debts. Ireland, Portugal, and Greece are already out of the financial markets and borrowing from the European authorities and the IMF.

All this is just to explain what the Troika is doing. They are also playing another game of chicken, and that is with the Greek debt. In this case, the private creditors are heavily involved, since they want to squeeze as much out of Greece as they can. A default, or restructuring with a haircut of at least 60 percent, is already accepted as inevitable; but of course the risk here is that the Greek government falls and there is a chaotic default. The European authorities have been trying to prepare for this possibility and build something of a firewall around Greece, but so far it is still a threat.

So, why are they doing these things? For the ECB and their allies in the Troika, part of the motivation is that they see the crisis as an opportunity to force “reforms,” much like the IMF has done to low-and-middle-income countries for the past thirty years. For some in the ECB, there is also a resistance to create money – as the Federal Reserve has done in this U.S., creating more than $2.3 trillion dollars since 2008 – in order to do what is obviously needed, i.e. stabilize the Italian and Spanish bond yields. Some of this involves ideology and incompetence, in terms of economic reasoning. And some of it is attributable to a strong prejudice toward the interests of creditors as a class: these people want to make sure that any country that has “borrowed too much” pays a price for doing so. Of course the crisis was not caused by the weaker eurozone countries “borrowing too much,” since all of them except Greece had been lowering their public debt/gdp ratios until the world recession; and even Greece’s debt would have been manageable had the Troika responded differently to the crisis in the first quarter of 2010. But that is how it has been spun, and the European authorities are mainly pretending that this is true.

Finally, with regard to the UK, that is a somewhat different story. It is more like the U.S., in that it has its own Central Bank and currency. And it has benefitted some from both the fall in the pound, and the Central Bank’s “quantitative easing” – using money creation to push down long-term interest rates. But the government is too conservative to use a fiscal stimulus in order to revive the economy in the face of everything that is pushing it into recession; in fact it has tightened the budget and committed to do more. This is a combination of incompetence and politics.

The Eurozone has been significantly more averse to stimulus measures than the United States - what do you attribute that to?

The main difference here is between the ECB and the U.S. Federal Reserve. The Fed has been willing to use quantitative easing and push down long-term interest rates. It should also be noted that when the Fed creates money and uses it to buy U.S. Treasury bonds, the resulting debt has no interest burden, because it is owned by the Fed and the interest is refunded back to the Treasury. In other words, it is net debt creation that matters, not gross debt. This is of course what the ECB needs to do, but it has refused to do it. Even the bond purchases it has made have been “sterilized,” that is, the ECB sells other assets so as to avoid increasing the money supply. How to account for this difference, which makes the Republican Fed Chairman Ben Bernanke look like a socialist in comparison with the ECB? It is partly a difference in the people in charge – Bernanke has studied the Great Depression and learned some lessons from it. But it is also a difference in the institutions – the ECB and the monetary union that created the euro was set up under a neoliberal, right-wing objective – its job was seen as to control inflation and there was not much of a mandate to promote full employment. And it wasn’t really created as a lender of last resort to the sovereign governments. Of course, that is no excuse – the rules are loose enough so that the ECB could do whatever is necessary – and Mario Draghi pretty much said that in December when he said that the ECB’s mandate to insure “price stability” also applied to avoiding deflation. In other words, they could do what the Fed has done in order to avoid a recession. And of course there are German politicians who push the ECB not to do what other central banks would do in this situation.

With regard to fiscal stimulus, it should be kept in mind that U.S. fiscal stimulus has been just a fraction of what was needed, about one-eighth the size (taking into account the fiscal tightening of the state and local governments) of the loss of demand from the bursting of the housing bubble. Of course, Europe has been even worse, but that is mostly because of the ECB and its allies, and the pressure that they have exerted on governments to engage in pro-cyclical fiscal tightening.

What do you think the economic prospects are in the coming months for the southern European states?

The eurozone is forecast by the IMF to be in recession this year, and it is clear that the economies are mostly getting worse. How deep the recession gets is of course difficult to predict. I am not of the school that predicts financial meltdown, the break-up of the euro, or any kind of catastrophe in the foreseeable future. That is because I think the ECB and Troika will probably do what is necessary to avoid that. I say probably because they could screw up. But so far, when push comes to shove, over the last two years they have repeatedly taken further steps – sometimes doing things that they had pledged not to do – in order to avoid a Lehman-Brothers type of crisis. Most recently, in December, the ECB loaned $638 billion to European banks, easing a liquidity crisis that was threatening the banking system. It was also a back door way of pushing down yields on sovereign debt, as the banks – borrowing from the ECB at one percent – used the money to buy sovereign bonds. The ECB is set to do more of this later in February.

Of course, preventing a financial meltdown is not the same as pulling the eurozone out of recession and high unemployment (22.9 percent in Spain, 19.2 percent in Greece, 14.5 percent in Ireland, 13.6 percent in Portugal and 10.4 percent for the eurozone as a whole). So the near future of the eurozone economies is bleak, and likely to get worse until there are some significant policy changes.

I should emphasize there that the outcomes in the near future are not pre-determined, and will be largely determined by political struggles. Since Italy and Spain are “too big to fail,” if either of these governments were to stand their ground against budget tightening imposed by the European authorities, the European authorities would very likely back down. The smaller governments (Ireland, Portugal, and even Greece), also have a lot of bargaining power if they were to use it, since the european authorities want to avoid a major financial crisis and also the break-up of the euro. They should be using the threat of default and exit from the euro in order to force the European authorities to stop punishing them.

What policies do you think the eurozone countries ought to pursue to pull themselves out of the financial crisis?

As I noted above, the solutions are not that difficult. The ECB would have to do what the Fed has been doing, although it is much more urgent in the eurozone for three reasons: (1) there is already a recession and (2) the threat of financial meltdown is slowing the eurozone economy, and also the world economy and (3) the main way to stabilize the financial system and remove the threat of meltdown is to stabilize interest rates on sovereign bonds, especially for Italy and Spain but also for the other eurozone countries, at a low level. It is when these interest rates rise that things get panicky.

There also needs to be a restructuring of the Greek debt with a bigger haircut than what is being negotiated now, which is intended only to lower Greece’s debt/GDP ratio to 120 percent by 2020. This is not enough to avoid more crises and default by Greece. And the interest rates for the Greek debt have to be lowered drastically, to a sustainable level.

Finally, and most importantly, the whole eurozone needs to reverse course and implement an expansionary fiscal policy, to bring the region out of recession.

Are there any states that you think have responded in a more sensible way to the world financial crisis?

Germany has responded fairly well internally with its work-sharing policies, which as noted above have brought unemployment down to below pre-recession levels. This should be a model for other countries, with the government subsidizing employers to keep employees on the job at reduced pay. Shorter work hours, as they become institutionalized, are also a great potential weapon against climate change. Europe uses about half the energy per capita as the United States does, and a big part of this is due to the fact that Europeans have taken a significant share of their productivity gains over the years in the form of reduced hours, rather than increased consumption. For a developing country, China responded best to the world recession. In 2009, the slowing world economy knocked 3.7 percentage points off of China’s GDP growth from reduced net exports; but China was able to keep growing at 9.1 percent, partly due to a 20 percent increase in capital formation. There are other examples of successful counter-cyclical policies during the last recession; it remains to be seen what countries will adopt sufficient stimulus policies to counter-act the slowing economy this time around.

http://www.zcommunications.org/the-euro ... k-weisbrot

[Enki]

If we're going to talk about Greece lets at least put some of the beautiful photos of Athens burning to the ground.