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Fabrizio
February 10th, 2010, 09:05 AM
European Debt Issues Top Agenda for Meeting


By STEPHEN CASTLE
Published: February 9, 2010 - NYTimes

STRASBOURG, France — With the European Union’s single currency in the grip of the worst crisis in its history, the bloc’s new president is expected to use the growing alarm over debt levels to argue for a new form of “economic government” in Europe.

Herman Van Rompuy, the new president, will present his proposal to the leaders on Thursday at a summit meeting in Brussels, now certain to be dominated by worries about deficit and debt levels in Greece.

Mr. Van Rompuy’s proposal could take main responsibility for stewardship of economic coordination out of the hands of the 27 nations’ finance ministers, elevating it to the level of heads of government. The plan could also reduce the role of the European Commission, the bloc’s executive arm.

According to a draft of one of two documents circulated before the meeting, Mr. Van Rompuy (pronounced rom-PWEE) will argue that “recent developments in the euro area highlight the urgent need to strengthen our economic governance.”

“Whether it is called coordination of policies or economic government,” it adds, “only the European Council is capable of delivering and sustaining a common European strategy for more growth and more jobs.”

Under the plan, prime ministers would be asked to sign on to national reform goals, to which they would be held accountable at least once a year. The goals would be agreed to by June this year, and assessments of progress would be made public.

“Recommendations for the euro area as a whole and its member states should be strengthened, with a stronger focus on competitiveness and macroeconomic imbalances,” the draft says. “This would be in line with the importance of economic spillover effects in the monetary union and the challenges the euro area is facing.”

Diplomats say that markets will expect a strong signal on debt levels in Greece, Portugal and Spain from the European Union leaders at the meeting and that the leaders will, at the very least, need to make a statement on the Greek situation.

On Tuesday, the president of the European Commission, José Manuel Barroso — whose second term in office was endorsed by the European Parliament in Strasbourg — insisted that the “euro area has the capacity to deal with the difficulties.”

Though private discussions about a last-ditch bailout of Greece have taken place behind the scenes, the European Union leaders are hoping that they can reassure the markets that this will not be necessary. Some analysts have argued that the heads of government should use the summit meeting to draw up procedures and structures to deal with a potential default in the euro zone.

But Mr. Van Rompuy hopes to use the crisis to focus on medium-term reforms. He is expected to suggest that leaders agree to accept a maximum of five overall goals. These, to be proposed by Mr. Barroso, are likely to include such areas as spending on research and development, objectives for the digital economy, energy and green growth and overall employment goals.

Individual countries would eventually set out their own detailed objectives, differentiated according to their starting points.

Governments and the European Commission would also identify “the most pressing bottlenecks and barriers hampering growth.” The billions of euros spent by the European Union in structural fund subsidies or lending from the European Investment Bank would be used as incentives, the draft says.

Meanwhile, European members of Parliament formally voted a new European Commission into power on Tuesday, ending months of stalled policy making. By 488 votes to 137, with 72 abstentions, the legislators approved the new commission after more than three months of delays.

The Parliament’s endorsement completes a long, bruising, personal battle for Mr. Barroso to remain in office. With his mandate now secure, Mr. Barroso has, in theory, more freedom to use the significant economic powers that the European Commission holds within the bloc, where it acts as antitrust regulator, trade negotiator and guarantor of the union’s single market of almost 500 million consumers.

But, during a parliamentary debate Tuesday, Mr. Barroso rejected criticism from some deputies that he had been too reluctant to push European integration against opposition from national capitals. He was, he said, ready to be bold, but added, “The commission cannot establish its influence, its power, its leadership against the democratic member states.”

http://www.nytimes.com/2010/02/10/world/europe/10union.html?ref=global-home

Alonzo-ny
February 10th, 2010, 11:14 AM
The situation with Greece is making apparent some problems with the way that the Eurozone works. I am very glad the Uk is not part of it. I believe had the Uk been in the Euro then our recession would have been even worse than it was.

Fabrizio
February 10th, 2010, 11:40 AM
Most of the problems with Europe in particular Spain, Portugal, Greece is due to insane social spending... these are all old style Socialist governments. That is why the rest of Europe has veered to the right putting in place more prudent policies. We all want a social safety net but there has to be limits.... when you have things like State workers able to retire at 45 with full benefits... that sort of nonsense... some one has to pay for it.


---

dtolman
February 10th, 2010, 05:09 PM
This recession should have been Europe's time to shine - instead it became China's. A huge stumble by Europe - and a bad sign for things to come.

The EU is clearly not working as a tool to increase Europe's economic/political clout - even the US, which by all rights should have been eclipsed by Europe, seems like a pillar of economic stability.

Alonzo-ny
February 10th, 2010, 06:00 PM
This recession should have been Europe's time to shine.

Explain? I disagree that it has been anyone's time to shine, even China's. The rest of your post needs further explanation as well. We have all been in recession. Some of your statements are just hyperbole.

dtolman
February 10th, 2010, 06:38 PM
Europe has been waiting for a moment to show economic and political leadership. This could have been their time - a moment to take the stage to show off the "new" Europe and its role in the 21st century.

Look at 2007: The US was the source of a global recession, its economic policies discredited for the time being. There was a temporary vacuum of leadership. Instead of taking a step up and showing economic leadership, the Euro zone was unable to get their act together - to the point where the solvency of the currency block is now at risk today.

A united Europe was supposed to be a 21st century powerhouse, instead it looks like this will be the century of China and America.

Alonzo-ny
February 10th, 2010, 07:37 PM
I haven't seen any leadership from China. I think this century was always going to be about China's economy no matter what. America's influence will not grow this century. As for Europe I am not sure what you wanted them to do. Lead the way with new regulation? The EU will not be able to match the growth of China, our economies are for the most part already mature. The EU's economy is bigger than the US. As for being political leaders, the EU isn't in a position to do that. The post of EU president has only just been created and is essential powerless.

Fabrizio
February 15th, 2010, 08:14 AM
The Making of a Euromess

NYTimes - By PAUL KRUGMAN Published: February 14, 2010

Lately, financial news has been dominated by reports from Greece and other nations on the European periphery. And rightly so. But I’ve been troubled by reporting that focuses almost exclusively on European debts and deficits, conveying the impression that it’s all about government profligacy — and feeding into the narrative of our own deficit hawks, who want to slash spending even in the face of mass unemployment, and hold Greece up as an object lesson of what will happen if we don’t. For the truth is that lack of fiscal discipline isn’t the whole, or even the main, source of Europe’s troubles — not even in Greece, whose government was indeed irresponsible (and hid its irresponsibility with creative accounting).

No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment. Consider the case of Spain, which on the eve of the crisis appeared to be a model fiscal citizen. Its debts were low — 43 percent of G.D.P. in 2007, compared with 66 percent in Germany. It was running budget surpluses. And it had exemplary bank regulation. But with its warm weather and beaches, Spain was also the Florida of Europe — and like Florida, it experienced a huge housing boom. The financing for this boom came largely from outside the country: there were giant inflows of capital from the rest of Europe, Germany in particular.

The result was rapid growth combined with significant inflation: between 2000 and 2008, the prices of goods and services produced in Spain rose by 35 percent, compared with a rise of only 10 percent in Germany. Thanks to rising costs, Spanish exports became increasingly uncompetitive, but job growth stayed strong thanks to the housing boom. Then the bubble burst. Spanish unemployment soared, and the budget went into deep deficit. But the flood of red ink — which was caused partly by the way the slump depressed revenues and partly by emergency spending to limit the slump’s human costs — was a result, not a cause, of Spain’s problems. And there’s not much that Spain’s government can do to make things better. The nation’s core economic problem is that costs and prices have gotten out of line with those in the rest of Europe. If Spain still had its old currency, the peseta, it could remedy that problem quickly through devaluation — by, say, reducing the value of a peseta by 20 percent against other European currencies. But Spain no longer has its own money, which means that it can regain competitiveness only through a slow, grinding process of deflation.

Now, if Spain were an American state rather than a European country, things wouldn’t be so bad. For one thing, costs and prices wouldn’t have gotten so far out of line: Florida, which among other things was freely able to attract workers from other states and keep labor costs down, never experienced anything like Spain’s relative inflation. For another, Spain would be receiving a lot of automatic support in the crisis: Florida’s housing boom has gone bust, but Washington keeps sending the Social Security and Medicare checks. But Spain isn’t an American state, and as a result it’s in deep trouble. Greece, of course, is in even deeper trouble, because the Greeks, unlike the Spaniards, actually were fiscally irresponsible. Greece, however, has a small economy, whose troubles matter mainly because they’re spilling over to much bigger economies, like Spain’s. So the inflexibility of the euro, not deficit spending, lies at the heart of the crisis.

None of this should come as a big surprise. Long before the euro came into being, economists warned that Europe wasn’t ready for a single currency. But these warnings were ignored, and the crisis came. Now what? A breakup of the euro is very nearly unthinkable, as a sheer matter of practicality. As Berkeley’s Barry Eichengreen puts it, an attempt to reintroduce a national currency would trigger “the mother of all financial crises.” So the only way out is forward: to make the euro work, Europe needs to move much further toward political union, so that European nations start to function more like American states. But that’s not going to happen anytime soon. What we’ll probably see over the next few years is a painful process of muddling through: bailouts accompanied by demands for savage austerity, all against a background of very high unemployment, perpetuated by the grinding deflation I already mentioned.

It’s an ugly picture. But it’s important to understand the nature of Europe’s fatal flaw. Yes, some governments were irresponsible; but the fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready.

http://www.nytimes.com/2010/02/15/opinion/15krugman.html

Fabrizio
February 15th, 2010, 08:29 AM
EU Wants Greece to Explain Debt Swaps

By THE ASSOCIATED PRESS
Published: February 15, 2010
Filed at 8:09 a.m. ET

BRUSSELS (AP) -- The European Commission said Monday that it wants Greece to explain how it used complex financial deals that allegedly made its debt limits look lower.

Greece's credibility is already under fire for falsifying statistics and hiding the extent of its deficits, which have triggered a debt crisis that threatens the euro currency union and has sent the euro sliding.

EU spokesman Amadeu Altafaj Tardio says the EU executive has given Greece an end-of-February deadline to give details on how the deals, called currency swaps, affected government accounts since 2001

He said such swaps weren't illegal unless the Greece was not using market rates to calculate the exchange rates used for the swaps. Greece never told the EU that it was using the swaps to mask debt, he said.

Complete article: http://www.nytimes.com/aponline/2010/02/15/business/AP-EU-Europe-Financial-Crisis.html

lofter1
February 15th, 2010, 10:43 AM
An in depth article on the Greece / Goldman Sachs situation from the Sunday NY Times:

Wall St. Helped to Mask Debt Fueling Europe’s Crisis

NY TIMES (http://www.nytimes.com/2010/02/14/business/global/14debt.html?em)
By LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
February 14, 2010

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.

Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street’s role in the world’s latest financial drama.

As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.

Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities ...

FULL ARTICLE (http://www.nytimes.com/2010/02/14/business/global/14debt.html?em)

Copyright 2010 The New York Times Company

Fabrizio
February 15th, 2010, 11:03 AM
Maybe I'm not understanding this, but I don't see how the US banks could be blamed for this one.... governments know what they are doing. It was just a way to hold off reckoning for a few years until the next elections. Austerity programs are always unpopular... especially in countries with huge civil service sectors and over-the-top benefits. So you cook the books and borrow and bide time.

lofter1
February 15th, 2010, 11:33 AM
Only some in the government know what is being done. And as the articles state, none of the transactions were illegal in the strict sense so, no ... the banks hold no lawful responsibility in that regard.

However, to play devil's advocate, is it in our interest to continue to bolster any bank (including Goldman Sachs) that creates this type of illusory mechanism which push debt into the future to such a degree that the amounts are ultimately unpayable, thereby putting future citizens at huge risk?

With the economies of countries so interlinked the repercussions are endless. Immediate gains for the banks and politicians need to be tempered by something. Cooking the books is usually a desperate action -- the signs of trouble are clear, or there'd be no need to cook 'em. And voting out politicians after the fact will do little to repair the damage.

I don't know the answer. There may be no answer. Greed and self-interest will probably always rule -- and those with the goods will continue to call the shots.

lofter1
February 15th, 2010, 11:34 AM
So ^ the rest of us are all screwed :(

Ninjahedge
February 16th, 2010, 09:55 AM
Actually Loft, that would be a lot nicer than what we are left with now....

Fabrizio
March 5th, 2010, 10:51 AM
I don't see how these protesters think Greece will ever clear up it's financial problems without the measures it is taking.

Greek Protesters Clash With Police in Athens

By THE ASSOCIATED PRESS
Published: March 5, 2010 - nytimes

ATHENS, Greece (AP) -- The Greek parliament approved new spending cuts and taxes Friday aimed at defusing the country's debt crisis, while protesters opposed to the measures fought with police outside. Prime Minister George Papandreou headed abroad to seek European leaders' support for his efforts. Riot police used tear gas and baton charges to disperse rioters who chased the ceremonial guards in 19th-century kilts and tasseled garters away from the Tomb of the Unknown Soldier outside the parliament, while a top trade union leader was roughed up by left-wing protesters.

It was the biggest outburst of violence since Greece's debt crisis escalated late last year. Police say they arrested 5 people, and seven officers were injured. Greece's financial troubles have shaken the European Union and its shared euro currency, whose rules were supposed to prevent governments from running up too much debt. Up to 7,000 demonstrators gathered outside as lawmakers debated the austerity package, which aims to save euro4.8 billion ($6.5 billion) with measures including higher consumer taxes and cuts to public sector workers' pay of up to 8 percent. Papandreou met in Luxembourg with Prime Minister Jean-Claude Juncker, head of the group of eurozone finance ministers. Later Friday, he will hold talks in Berlin with German Chancellor Angela Merkel.

Demonstrators attacked the two military guards and their escorting officers, smashing windows and kicking the guard posts. Earlier, leftwing protesters attacked the head of Greece's largest trade union who was addressing the crowd. GSEE head Yiannis Panagopoulos traded blows with his assailants before being whisked away bloodied and with torn clothes. GSEE and the ADEDY umbrella civil servant union held work stoppages to protest the austerity measures, while hospitals, schools and public transport were closed down.

Further violence broke out later Friday in Athens, with masked youths attacking riot police inside the Council of State, Greece's highest administrative court, and trying to break into the Labor Ministry. Rioters also smashed the glass fronts of two banks, two hotels, a mobile phone shop and a fast food restaurant. An earlier protest ended peacefully, while there were smaller clashes during two protests in Thessaloniki, Greece's second-largest city. The center-left government says it is seeking a total euro16 billion ($21.87 billion) in savings this year, to reduce a bloated budget deficit of some euro30 billion that is over four times the EU limit as a percentage of annual output. The cuts are key in convincing bond markets to loan the country money and to win support from the European Union.

Merkel and Germany, as the biggest of the 16 countries that use the euro, would play a key role in any financial lifeline the EU plans to offer Greece. But the German government has said that Friday's meeting is not about giving aid and the EU's promise of support, first issued last month, remains vague. Despite raising euro5 billion ($6.83 billion) from a successful 10-year bond issue Thursday, Athens remains under intense pressure from high borrowing rates. Papandreou has ruffled Europe's feathers by warning that Greece could request financial help from the International Monetary Fund unless the EU details potential emergency support.

Jean-Claude Juncker said after meeting Papandreou that ''we have to deal with the problem as a euro area.'' He said it was acceptable for the IMF to offer technical assistance. But he insisted: ''as the chairman of the euro group I'd like to exclude any further involvement of the IMF.'' Papandreou insists Greece is not seeking bailout money from the European Union but a public commitment to a financial rescue plan that would reassure markets. Asked what he wants from Merkel, Papandreou said in an interview published Friday in Germany's daily Frankfurter Allgemeine Zeitung that Greece needed ''support ... that there is European support so that we can borrow money under reasonable conditions.'' He said that Greece has never asked for a bailout, but lack of support would hurt his reform plans. ''And that would, one way or another, be expensive for all of Europe,'' Papandreou said. ''If the euro retreated, that might help some countries with their exports, but it would for example make importing oil and gas more expensive.''

Merkel said Friday she expects ''interesting'' and friendly talks with Papandreou, adding that Greece's successful bond issue ''gives us optimism'' that things will go well in the months ahead. At a televised news conference in Munich, Merkel said the sale showed that the new austerity measures announced this had the desired effect. Papandreou will also discuss the debt crisis with French President Nicolas Sarkozy in Paris Sunday, and meet U.S. President Barack Obama on March 9 in Washington.

French Finance Minister Christine Lagarde said Friday that Sarkozy would back Greece if its debt woes got it into real trouble. While she told LCI television that Sunday's meeting would focus on how the Greek government's new austerity plans will be enacted, she also said she expects Sarkozy will tell Papandreou that France would be there if Greece got into real difficulties. She did not explain what form that support would take.

Friday's strike saw state schools closed, while hospitals functioned with emergency staff and all Athens public transport was idle. An air traffic controllers work stoppage from 1000GMT to 1400GMT canceled dozens of flights, while journalists also walked off the job for a few hours. Finance Minister George Papaconstantinou said the belt-tightening would work -- if unswervingly enforced. ''In emergencies, governments take emergency measures,'' he told lawmakers during the austerity law debate. ''Will we succeed? Yes, we will. Will we have to take further measures? No, provided we implement the program we have submitted. And we will.''

http://www.nytimes.com/aponline/2010/03/05/business/AP-EU-Greece-Financial-Crisis.html?ref=global-home

ZippyTheChimp
March 5th, 2010, 11:03 AM
Maybe the 2004 Athens Olympics wasn't such a good idea. Staggering debt.

Greece was hoping for the "Barcelona Effect" (1992). Instead they got the "Montreal Effect" (1976).

futurecity
March 5th, 2010, 11:12 AM
I haven't seen any leadership from China. I think this century was always going to be about China's economy no matter what. America's influence will not grow this century. As for Europe I am not sure what you wanted them to do. Lead the way with new regulation? The EU will not be able to match the growth of China, our economies are for the most part already mature. The EU's economy is bigger than the US. As for being political leaders, the EU isn't in a position to do that. The post of EU president has only just been created and is essential powerless.

Well, it isn't fair to compare the EU to the USA. First of all, the USA is just one country and does not have the luxury of adding a new economy to its GDP figures every 10 years or so - i.e, croatia, slovenia, Lativa, etc.. perhaps in the future Turkey or Ukraine. Also the EU has over 500 million people, so its only natural that it would have the bigger economy compared to the US given that European states are for the most part mature and developed, besides a few examples.

Perhaps if the USA had a union with Mexico and Canada the situation would be more even. So, I think its foolhardy to compare the US States to the European Union's states, as their national governments are too strong vis-a-vis Brussells to be considered anything more than a loose amalgamation of entities fighting to retain sovereign control.

Fabrizio
March 5th, 2010, 11:28 AM
Will the Spanish gov. get tough?....


Economy of Spain on the Edge
By JOHN VINOCUR
Published: March 1, 2010 - nytimes

MADRID — The idea that Spain could become a target of the world’s markets, an economic basket case weighing down the euro, is a preposterous notion, but not an unthinkable one.

It’s preposterous in the sense that this is a great, energetic, creative and competent nation that in about 25 years shed a dismissive label as a cheap place for two weeks in the sun to become Europe’s fifth economy, Latin America’s biggest foreign investor, and an all-points, high/low cultural turbine producing terrific films, clothes people want to wear, exceptional food, and great soccer and basketball.

In 2010, that’s a reasonable, widespread perception. Still, according to Fernando Fernandez, a former chief economist at Banco Santander and former official at the International Monetary Fund in Washington, “an attack by markets on Spain would be based on some rationality.” Now a professor at IE University here, he said, “An 11.4 percent deficit like ours is huge.” Last week, José Manuel Barroso, president of the European Commission, and Angel Gurría, secretary general of Organization of Economic Cooperation and Development, were in town on separate missions to insist, as decorously and elliptically as possible, that Greece (whose 12.7 percent deficit and substandard accounting methods have shaken the euro), and Spain (having the confidence of its lenders and much lower debt) were chalk and cheese.

Still, Spain’s facts are scary: 18.8 percent unemployment; about half the age group under 25 out of work; €600 billion, or $820 billion, in mortgages outstanding after the end of a construction boom two years ago; and a real effective exchange rate that the E.U. Commission says is overvalued by 10 percent.

Spanish structural realities run a along a similar track: Productivity and competitiveness are low. The job market’s rigidities mean that two-thirds of the labor force are permanent hires, blocking a potential fall in real wages after a rise in labor costs of 4 percent a year over the last nine. To boot, the central government controls only about 25 percent to 30 percent of discretionary spending, with the rest of state revenue devolving to regional and local governments with their own notions of savings and expenditures.

What to do? The governor of the Bank of Spain, Miguel Ángel Fernández Ordóñez, says that failing “urgent” and “ambitious” reforms in the labor market, the Spanish economy will enter a “tough and complicated period.” Which is a gently phrased complement to the insistent market noises saying Spain stays an attractive speculative target even if the European Union rescues Greece. Mr. Ordóñez, who also sits on the governing committee of the European Central Bank, stressed the need for an immediate, convincing response.
The startling thing in Madrid is its seeming absence. There’s a kind of lethargy instead. No crash program with specific goals to change the Spanish economy over the next weeks and months is coming from right-wing opposition. And the Socialist government of Prime Minister José Luis Rodríguez Zapatero appears to bumble ahead confusedly, casting proposed cutbacks into the air, then reeling them back.

Mr. Zapatero himself informed an international audience of his plan to push back Spain’s retirement age to 67 from 65, which, days later, was put it into the conditional tense. The possibility of a public sector wage freeze, discussed in the press by an official last Wednesday, got buried on Thursday by Finance Minister Elena Salgado. The government’s effort seemed as feeble as an initiative announced by the Fundación Confianza, a group backed by big Spanish firms like Telefónica, Santander and BBVA, seeking to buck up national confidence with a Web site called estoloarreglamosentretodos.org. Roughly translated, that’s togetherwecanstraightenthingsout. I tried to get onto the site on Monday morning and was shunted to one having to do with sustainable transport. Spanish politics, frankly, does not currently seem up to the intensity of action that the country’s economic and financial circumstances would suggest — and appears barely conscious of the implications for the world’s view of Europe if Spain were to fall to its knees.

The opposition Popular Party, which the polls indicate would run up to seven points ahead of the Socialists if national elections scheduled for 2012 were held now, gives the impression of not wanting to do anything — proposing a cutback in social security levels, for instance — that might spook a single prospective voter. Mr. Zapatero, in turn, it is said, just might relish some kind of eventual E.U. involvement, guidance or assistance in enacting the tough austerity measures his constituency, notably the trade unions, would otherwise resist. In the Spanish context, where the electorate holds the E.U. in ongoing reverence, accepting what could be euphemized as a European austerity checklist could be a politically manageable way out for the prime minister. But the game may be moving quickly outside of Spain’s grip. On Friday, the ratings agency Standard & Poor’s, far from endorsing the credibility of the government’s pledge to the E.U. to reduce its deficit to 3 percent of gross domestic product by 2013, said it thought it was likely to remain above 5 percent.

It said it expected “much weaker economic performance” than the government expects, with unemployment remaining above 15 percent over the period. The agency also renewed its negative outlook on Spain’s sovereign ratings “in the absence of more aggressive and tangible actions by the authorities.” As if in response, Ms. Salgado, the finance minister, asserted that the country, which remains in recession, would grow in every quarter this year. And — Let the good times roll! — sounding like someone who thought they had assurances that Spain was Too Big to Fail, she insisted that members of the euro zone “will not stand idle if one of the member countries is in trouble.” That was late Friday. On Monday, Mr. Zapatero doubled up on Ms. Salgado’s statement of confidence, telling the Frankfurter Allgemeine Zeitung in an interview, “You can have absolute confidence in us. Our plan to reduce the deficit will be fulfilled.” Then, almost in the next sentence, he added a new turn to the government’s pattern of confusion, and cut the legs off the finance minister’s timetable for Spain’s emergence from recession by as much as half.

“I am convinced,” Mr. Zapatero said, “that our economy will be growing again by the fourth quarter, at the latest.”

http://www.nytimes.com/2010/03/02/world/europe/02iht-politicus.html?pagewanted=1&ref=europe

Alonzo-ny
March 5th, 2010, 02:57 PM
Futurecity,

Out my whole post you respond to one small objective observation?


The EU's economy is bigger than the US

I don't think I said anything which opposed your view. Unless I have in a previous post?

Fabrizio
March 8th, 2010, 05:28 AM
Bravo Sarkozy:

Absorbing the Blows That Buffet Europe


By STEVEN ERLANGER
Published: March 7, 2010 - nytimes

QUIMPER, France — HB-Henriot is one of the oldest companies in France, an artisanal producer of faïence — hand-painted glazed earthenware — since 1690. The company was founded here in Brittany for its waterpower and riverbed clay. President Nicolas Sarkozy, below left, and Prime Minister François Fillon have been credited with helping France stay stable in the economic storm.

The salting of the River Odet has rendered local clay unusable, because the salt causes the earthenware to crack in the kilns. But the company remains, having absorbed a rival in 1968, as one of two faïenceries in the region, and holds a plaque from the government as an “enterprise du patrimoine vivant” — a company of the living heritage of France. That designation brings HB-Henriot no money, said its director general, Michel Merle, and it has been hit hard by Asian competition, a weak dollar and the economic crisis in its main export markets in the United States and Japan.

Still, the French government stepped up early, helping to save the company and its 54 jobs, Mr. Merle said. Paris accelerated payments and tax reimbursements to small and medium-size companies; it deferred tax payments and accepted deductions immediately, auditing them later; it gave subsidies equal to almost a month’s salary per worker so firms could reduce labor costs and inventory without losing employees. And Paris provided some credit guarantees, so that shell-shocked banks were more willing to make loans to small companies like this one.

HB-Henriot is a prime example of how France is not only weathering the economic storm, but has emerged as one of the most stable economies in Europe, the first to pull out of recession and with unexpectedly large growth in the last quarter of 2009, while the German recovery stalled. France moved early. It concentrated on saving companies and jobs, sometimes to the annoyance of its European Union partners; emphasized investment in job-creating infrastructure; propped up its banks and pressed them to lend; and decided to let its budget deficit expand further for a few years, but in moderation.

As Greece struggles to avoid default or bailout, Spain and Portugal watch anxiously, Sweden falls back into recession, Germany argues about historically high budget deficits and Britain grapples with deficits and debt of Greek proportions while France looks both solid and even wise. But France was also lucky, neither as export-oriented as Germany nor as go-go as Britain and the United States. Alexandre Delaigue, an economist with a popular blog, éconoclaste, said simply: “France was hit less because its real estate was less important than Ireland and Spain, its finance less important than the U.K., and it was less exposed to Eastern Europe than Germany.”

France’s recession was not nearly as deep as Germany’s, let alone that of the United States. Growth for this year is forecast to be positive but modest at about 1.2 percent, about the same as in Germany, compared with 0.7 percent for Europe as a whole and with 2.2 percent in the United States. But French banks are in better condition than those in Germany, and France is far less dependent than Germany on finding markets for manufactured and luxury goods.

French policy is far from perfect, with unemployment increasing, especially among youth, along with the budget deficit and the already high national debt, issues that will outlast the crisis. The government now promises to cut growth in total public spending to less than 1 percent a year from 2011 and get the deficit to 3 percent of gross domestic product by 2013, although its growth forecasts seem too high and tax increases may be necessary, despite steady denials. But in general the verdict is positive for President Nicolas Sarkozy and his government, which moved quickly to recognize a crisis and exercise state powers. “France resisted the crisis better than most of her European partners and got out of recession first,” said Prime Minister François Fillon.

Mr. Fillon, Patrick Devedjian, the minister in charge of implementing the recovery plan, and Christine Lagarde, the minister of economic affairs, industry and employment, are given a lot of the credit. In an interview, Ms. Lagarde said: “I think we’ve done relatively and reasonably well. We applied the three ‘t’s’: timely, temporary and targeted.” France decided to put half its package into investment and half into stimulus, she said, concentrating on small and medium enterprises, since they are “more agile” and represent 95 percent of the two million registered French companies. A key decision, she said, was to accelerate state payments. “We swamped companies with cash, with whatever was due them, because we knew the cash and credit situations were difficult,” she said. Credit insurance was extended to exporters, a government agency guaranteed loans and shared them with banks, and the government created a sovereign fund to invest in companies.

Mr. Sarkozy created a “credit mediator” to intervene between companies and banks upon appeal and push the banks to reconsider, a process Ms. Lagarde said worked in 65 percent of cases, involving 16,000 companies and 150,000 jobs. A year ago, he had announced a $34 billion stimulus plan over two years that propped up the car industry and went to infrastructure projects. Then in December, he announced a $52 billion investment package, called “the Big Loan,” supposedly aimed at the future, to put money into universities, renewable energy and electric cars. More than 60 percent of the money will be borrowed by the government, and the rest is supposed to come from bank repayments of capital the state pushed on them a year ago.

Jacques Mistral, an economist at the French Institute for International Relations, said that “what Sarkozy did for the recovery has been pretty well designed and managed — he had a good early view of the seriousness of the crisis, earlier than most of his counterparts.” Mr. Sarkozy was quick with a stimulus package, but modest with it, too, given the already large French debt. But for some critics, the French success is hardly surprising, and has more to do with the structure of the economy than with government policy. The size of the state sector — the sheer number of state employees, protected in their jobs and salaries — went some way to cushion the recession and keep up consumption. About a quarter of the labor force works for government, and more than half of gross domestic product is due to stems from state spending, including pensions and health care.

The main reason France did well was that its economy was “neither virtuous nor vicious,” said Daniel Cohen, professor of economics at the École Normale Supérieure. France was never as virtuous as Germany with its competitive, export-driven economy, which suffered badly when consumption dropped worldwide. In fact, France has long been losing market share in world trade. “France was not dependent on a bubble of credit like the British or on a bubble of housing like the Spanish or on both of them together, like the Americans,” Mr. Cohen said. “So we suffered less than the others.”

Economists worry about cumulative French debt, nearing $2 trillion, and rising fast as a percentage of gross domestic product. G.D.P. It has gone from 22 percent of G.D.P. in 1981, when François Mitterrand took power, to 63.8 percent in 2007, when Mr. Sarkozy took over. Insee, the National Institute of Statistics and Economic Studies, projects it could reach 81.5 percent in 2012. But what really sets France apart is the size of its high debt combined with high levels of public spending, with the government deficit in 2010 expected to be 8.2 percent of G.D.P. Mr. Delaigue says that given the crisis, “it would be suicidal now to try to balance the budget. For the time being, there is no other way than debt.”

But the economists point out that both Mr. Sarkozy and his predecessor, Jacques Chirac, men of the right, have for years been cutting taxes while increasing government spending, which is why the budget deficit rose so quickly, even before the crisis.

The stimulus program is only a small part of the projected budget deficit, Mr. Cohen said. Nearly half represents structural deficit, given tax cuts and increased social spending on an aging population, with a generous pension system that Mr. Sarkozy and Mr. Fillon say must be reformed. Over the last 10 years, income from taxes has fallen $80 billion a year, representing a third of next year’s deficit. “After the crisis there will have to be a moment of truth on how much structural deficit you can live with,” Mr. Cohen said. “The government is saying, ‘No tax increase,’ but how long will this last?”

As for HB-Henriot, with a new owner and new American distributor, it is trying to raise exports from 10 percent of its business to 30 percent, through ties to specialty stores like Pierre Deux. “We’re an artisanal product in a niche market,” said Mr. Merle, the director general. “We try to develop a market of the ‘coup de coeur,’ where the heart speaks before the wallet.” But the company will only survive if exports reach 50 percent of sales, he said. So its representatives are traveling to trade fairs in the United States, with French government advice and aid for travel, and it is also exploring collaboration with larger chains with online catalogs, like Williams-Sonoma in the United States. “You have to go and get your clients,” Mr. Merle said. “It’s necessary to be there, to occupy the terrain.” Otherwise despite all the state aid, and all the rhetoric about national identity and patrimony from French politicians, HB-Henriot too, like the auto companies, will have to consider outsourcing French jobs to compete with cheap Asian imports.


http://www.nytimes.com/2010/03/08/world/europe/08france.html?pagewanted=1&ref=global-home

Fabrizio
March 11th, 2010, 03:41 PM
Europe's pension problem, especially bad in Greece. An interesting read:

Patchwork Pension Plan Adds to Greek Debt Woes

ATHENS — Vasia Veremi may be only 28, but as a hairdresser in Athens, she is keenly aware that, under a current law that treats her job as hazardous to her health, she has the right to retire with a full pension at age 50.

“I use a hundred different chemicals every day — dyes, ammonia, you name it,” she said. “You think there’s no risk in that?” “People should be able to retire at a decent age,” Ms. Veremi added. “We are not made to live 150 years.”

Perhaps not, but that still makes it difficult to explain to outsiders why the Greek government has identified at least 580 job categories that are deemed to be hazardous enough to merit retiring early — at age 50 for women and 55 for men.

The law includes some predictably dangerous jobs like coal mining and bomb disposal. But it also covers positions like radio and television presenters who are thought to be at risk from the bacteria on their microphones and musicians playing wind instruments who must contend with gastric reflux as they puff and blow.

As a consequence of decades of bargains struck between strong unions and weak governments, Greece has promised early retirement to about 700,000 employees, or 40 percent of its work force, giving it one the lowest average retirement ages in Europe at 61.

But its patchwork system of early retirement has contributed to the out-of-control state spending that led to Europe’s current sovereign debt crisis.
The predicament has emerged as a divisive topic within Europe, especially because Germany, Greece’s most stubborn taskmaster on fiscal matters, has already taken politically difficult steps to increase its retirement age to 67 and reduce benefits.

Indeed, the problem with Greek pensions far outweighs the troubles caused by finagling with its accounts in the early 1990s to get its official deficit figures low enough to qualify to join the euro club. A recent report by the European Commission found that Greek spending on pensions and health care for its aging population, if left unchecked, would soar from just over 20 percent of G.D.P. today to about 37 percent of G.D.P. by 2060, the highest level in Europe.

Of course, Greece is not alone. Bigger countries like Germany, France, Spain and Italy have relied for decades on a munificent state financed by a range of stiff taxes to keep the political peace. Now, governments across Europe are being pressed to re-examine their commitments to providing generous pensions over extended retirements because the downturn has suddenly pushed at least part of these hidden costs to the surface.

The situation in the United States is different but equally dire. The United States government will face its own fiscal reckoning, analysts say, as 78 million baby boomers begin drawing on underfinanced Social Security and Medicare programs to support them in retirement. Without some combination of raising taxes, reducing benefits or pushing back the retirement age, both programs will run out of money within the next few decades. And many American states are woefully short of meeting their pension obligations for public employees.

In Europe, the conflict has already erupted on the streets of several major cities, with workers demanding that generous retirement policies be kept while governments press to pare pensions and raise retirement ages because taxpayers cannot bear any additional weight and creditors will no longer finance excessive borrowing.

To make matters worse, the unfunded pension liabilities far outweigh the high levels of official sovereign debt that governments owe creditors, which have caught Greece and several other weak European nations in a borrowing vise. And Greece’s government is setting itself up for a far bigger crisis down the road because it has not set aside nearly enough money to pay for all the pension promises it has made.

According to research by Jagadeesh Gokhale, an economist at the Cato Institute in Washington, bringing Greece’s pension obligations onto its balance sheet would show that the government’s debt is in reality equal to 875 percent of its gross domestic product, the highest level in the 16-nation euro zone, and far above its official debt level of 113 percent.

Other countries have obscured their total obligations as well. In France, where the official debt level is 76 percent of G.D.P., total debt rises to 549 percent of economic output once all of its current pension promises are taken into account. Similarly, in Germany, the current debt level of 69 percent would soar to 418 percent.

Mr. Gokhale, like many other economists, says he believes that this is a more appropriate way to assess a country’s debt level because it underscores the extent to which the cost of providing for rapidly aging populations, if left unchanged, will add to already troubling debt burdens.
You have to look ahead and see how pension expenditures are rising in comparison to the revenues needed to finance them,” he said. “It’s not just Greece; all major European countries are facing pension shortfalls. It is a very difficult challenge because it involves selling pain to current voters.”

He estimates that to fully finance future pension obligations, the average European country would need to set aside 8 percent of G.D.P. each year, a practical impossibility given that raising already high taxes by that amount would impose a crushing burden on their economies.

Mr. Gokhale has done a similar calculation for the United States and estimates that the truest measure of federal government debt, incorporating Medicare, Medicaid, Social Security and other obligations, is $77 trillion, or about 500 percent of G.D.P. Currently, United States debt owed to the public is equal to about 60 percent of G.D.P.

Many of these liabilities will not be coming due for decades. But as most developed countries suffer the worsening dynamic of having fewer workers to cover pensions and health care bills for the elderly, their ability to borrow more is rapidly approaching its limits.

In its 2009 annual report on Greece, the International Monetary Fund warned that the government’s excessive pension and health payments to the elderly would result in a debt level of 800 percent of G.D.P. by 2050 if left unchecked, similar to the figures Mr. Gokhale calculated. That is a theoretical number, of course: the debt will never reach that level because international creditors, who are already balking at lending Greece more money, will force changes in government programs well before Athens borrows that much.

“The pension crisis is the biggest single test of Greece’s willingness to tackle long standing reform,” said Kevin Featherstone, an expert on the Greek political economy at the London School of Economics. “Any meaningful reform must lead to reduced benefits for workers — the government needs to show that it can overcome union pressure.”

Greece has already proposed to raise its average retirement age to 63, and that may be just a beginning — not just for Athens but for much of Europe as well. The French president, Nicolas Sarkozy, has met with union leaders and broached the prospect of raising the normal retirement age from 60. Spain has gone further by proposing a retirement-age increase, to 67 from 65. In the face of union opposition, however, the government is wavering on that proposal.

“Projected pension expenditures are expected to double,” said Manos Matsaganis, a professor at the University of Athens and author of numerous papers on Greece’s pension system. “That is unsustainable.” Still, the millions who have come to rely on these payouts see their pensions as an acquired right, one they will not give up easily. “Nobody thinks they have to be the one to sacrifice,” Mr. Matsaganis said.

That’s certainly true of Christos Bourdakis, a retired government accountant. Sitting in a dusty union hall in Athens, he who is in no mood to offer any concession on his pension, regardless of the severity of the crisis. He is a full-throated proponent of a system that pays him a yearly pension of 30,000 euros, or $41,000, more than he was making when he retired 13 years ago at the age of 60. He has even written a book in defense of it, “The Guide to Granting Civil Service Pensions in Greece.”

“We have to protect our standard of living,” Mr. Bourdakis said. “The pensioners should not have to pay for the crisis created by the bankers.

http://www.nytimes.com/2010/03/12/business/global/12pension.html?ref=global-home

lofter1
March 11th, 2010, 05:46 PM
Crazy!

Ninjahedge
March 12th, 2010, 08:07 AM
In their infinite wisdom, the greeks have decided that women, who on average live longer than men, can retire earlier (w/pension?)

Time for some 20th century "equality" people!

195Broadway
March 12th, 2010, 01:12 PM
Is there no Greek word for "reality"?
I wonder how big the underground economy is there.

User Name
April 8th, 2010, 05:56 PM
Greece’s deepening debt crisis

The wax melts

Worries about Greece’s ability to roll over its maturing debt are giving way to bigger fears

Apr 8th 2010 | ATHENS AND LONDON | From The Economist print edition


GEORGE PAPANDREOU may have spoken too soon. On April 6th, just three days after the Greek prime minister claimed “the worst is over,” the yield on Greek ten-year government bonds leapt from 6.5% to above 7%. Yields remain at alarming levels, rising above 7.5% at one point on April 8th. The president of the European Central Bank, Jean-Claude Trichet, told a press conference that “default is not an issue for Greece.” But the D-word is increasingly on the lips of analysts. The cost of insuring Greece’s bonds surpassed that of Iceland’s this week; Greek banks have asked to tap a government liquidity scheme. Far from coming to an end, the Greek debt crisis seems scarcely to have begun.

More (http://www.economist.com/business-finance/displaystory.cfm?story_id=15877579&source=features_box1)

Fabrizio
April 8th, 2010, 06:11 PM
^ There will be so much resentment in the rest of Europe if Greece gets a bailout.


Looming Over Greece: The Specter of Bankruptcy
By LANDON THOMAS Jr.
Published: April 8, 2010 - NYTimes


LONDON — As interest rates on Greek debt spiraled upward again Thursday, the question facing Europe was no longer whether Athens has the political will to cut spending and raise taxes to curb its gaping budget deficit, but whether Greece will run out of money before it gets the chance to do so.

With the rate on 10-year Greek bonds reaching as high as 7.5 percent, up from 6.5 just three days ago, and the cost of insuring against a Greek default hitting a record high, the message from the market could not be clearer: Artfully worded communiqués from Brussels will no longer suffice.

To avoid bankruptcy, analysts said, Greece needs a bailout from Europe, and fast. “This is no longer about liquidity — it’s a solvency issue,” said Stephen Jen, a former economist at the International Monetary Fund who is now a strategist at BlueGold Capital Management in London.

But with European officials consumed with a debate over whether loans to Greece should be offered at rates consistent with a typical I.M.F. bailout or punitive ones closer to current market levels, the risk is that while Brussels fiddles, Greece is burning.

At a press conference on Thursday, Jean-Claude Trichet, president of the European Central Bank, sought to break the fever in the markets by saying that the aid program proposed by the International Monetary Fund and the European Union was a “very, very serious commitment.” The statement helped bring yields on 10-year Greek government bonds down from their peak for the day, to 7.35 percent, but it was not enough to turn around the mood of pessimism that contributed to a further fall in both Greek and European stocks on Thursday.

“Time is running out,” said a senior official in the Greek government who spoke only on condition of anonymity because of the sensitivity of the issue. “The market is testing Europe’s resolve.” To a large extent this latest bout of Euro-stasis is a function of Germany’s view that it is not the market contagion from the Greek drama that presents the greatest risk to Europe. Instead, Berlin is far more worried, as Mr. Jen puts it, about the supposed “contagion of bad behavior” in other countries like Portugal and Spain that might follow if Greece were to become the beneficiary of a bailout on relatively generous terms.

“This should be easy to do — Greece is only 3 percent of Europe’s G.D.P.,” said Paul De Grauwe, an economist based in Brussels who advises the president of the European Commission, José Manuel Barroso. “But this is no longer a financial issue. It is about politics and nationalism, and it is a real setback for those who believed in a united Europe.”

There are unmistakable signs that wealthy Greek individuals and corporations are withdrawing funds from Greek banks — although the sums involved do not yet constitute a bank run. Still, weakened Greek banks, increasingly shut out of the capital markets, have become largely dependent on the European Central Bank and have turned to the Greek government to release more money from a previously established rescue fund.

The Greek government is coming close to giving up on private investors as well. While Athens said it would go ahead with its short-term borrowing auctions this week, the planned fund-raising trip this month by the Greek finance minister, George Papaconstantinou, to tap Wall Street is unlikely to happen as long as Greek borrowing costs remain so high, said a person who was briefed on his plans.

Greece’s hope is that it will be able to borrow as much as €30 billion, or $40 billion, from Europe and the I.M.F. at a rate of about 4 percent or so — which is consistent with the terms offered by the fund to other indebted countries.

Such a view, however, presupposes that the I.M.F. is the lead actor in the rescue — as it was in countries like Hungary and Latvia that are not in the euro zone. In all the vagueness of the E.U. agreement with the I.M.F. on Greece, the one point of clarity was that Brussels rather the fund should dictate terms — even if a team of I.M.F. experts is already on the ground in Athens advising the government. As a result, European officials — pushed hard on this point by Germany — are now saying that Greece must not receive the carrot of concessional rates available to those who agree to accept the stick of an I.M.F.-style austerity package.

Greece’s interest payments on its net debt, as a percentage of its gross domestic product, are already the highest among developed nations, according to recent research by Deutsche Bank. And while the economy withers further as spending cuts and tax increases begin to bite, its ability to generate the needed revenues to pay these sums decreases. “If you look at Greece’s G.D.P. potential and its borrowing costs,” Mr. Jen said, “there is a gigantic gap.”

The sharp spike in rates has spurred increased talk of some form of debt restructuring. Under such a scenario, analysts said, holders of Greek debt could perhaps be forced to accept a loss of 20 percent or more on their bonds.

That would be similar to what happened after Argentina defaulted on $93 billion in debt in 2001. Like Argentina, Greece has suffered from a fixed currency, fiscal deficits and a growing lack of industrial competitiveness.

Still it seems unlikely that Europe — which via German and French banks owns more than €100 billion in Greek bonds — could countenance such a solution. “If you do a restructuring,” said Yannis Stournaras, an economist and adviser to previous Socialist governments, “people would not lend any further money to Greece.” “That would be a huge mistake,” Mr. Stournaras said. “Greece has the mechanism — it just has to ask for the money.”

http://www.nytimes.com/2010/04/09/business/global/09drachma.html?ref=global-home

MidtownGuy
April 11th, 2010, 04:15 PM
Some incredible photos here (http://www.sacbee.com/static/weblogs/photos/2010/03/riots-in-greece-over-debt-cris.html) of protesters last month in Athens.

User Name
April 11th, 2010, 04:39 PM
^^ I'm thinking people in the rest of Europe may be taking to the streets as well...

By Steve Goldstein, MarketWatch

LONDON (MarketWatch) -- Euro-zone nations on Sunday put meat on a rescue package of loans that Greece can tap, for the first time announcing the size and the rate of loans that the troubled country can potentially access.

As with the plan announced last month, euro-zone nations and the International Monetary Fund will jointly provide the loans. The European countries said they are willing to provide as much as 30 billion euros of assistance.

They also detailed the rate at which they will provide assistance. While they called it "non-concessional," the formula would result in three-year loans priced at 5% -- whereas two-year Greek bonds last week had yields of more than 6%.

A published report that such a program was in the works helped the spread between Greek and German bonds narrow on Friday even as Fitch downgraded the credit rating of Greece to the lowest investment-grade level.

The German public has vocally been opposed to any Greek rescue, with the issue being raised ahead of May elections in the euro-zone's richest country.

European countries will start working in order to be able to deliver "swift" assistance, and the European Central Bank, the IMF and Greece will start discussing details on Monday, according to the statement released Sunday.

http://www.marketwatch.com/story/europe-ready-to-lend-41-billion-to-greece-2010-04-11

BBMW
April 28th, 2010, 01:19 PM
Another domino falling futher over;


Spain’s Debt Rating Cut as Finance Officials Meet

By LANDON THOMAS Jr. (http://topics.nytimes.com/top/reference/timestopics/people/t/landon_jr_thomas/index.html?inline=nyt-per)

The ratings agency Standard & Poor’s (http://topics.nytimes.com/top/news/business/companies/standard_and_poors/index.html?inline=nyt-org) lowered the debt rating of Spain on Wednesday, its third downgrade of a European country in two days.
The downgrade came one day after the S.& P. cut the ratings of Greek and Portuguese debt, moves that set off a flight by investors away from global equities and into fixed income securities, particularly those in United States dollars.
The news Wednesday set off no such reaction, although an index of Spanish stocks fell about 3 percent. The S.&P. downgraded Spain’s debt one step, to AA, with a negative outlook.
With Greece (http://topics.nytimes.com/top/news/international/countriesandterritories/greece/index.html?inline=nyt-geo) inching closer to the brink of financial collapse, fear that the debt crisis will spread rattled global markets for a second day on Wednesday as investors awaited a signal from financial leaders gathering in Berlin.
Shares slumped 1 to 2 percent across much of Europe and Asia, and the euro (http://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/euro/index.html?inline=nyt-classifier) briefly fell to its lowest level in about a year against the dollar (http://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/dollar/index.html?inline=nyt-classifier), as investors worried that Portugal, Spain and even Ireland might not be able to borrow the billions of dollars they need to finance their government spending.
Market sentiment began to steady in afternoon trading in Europe, with the FTSE 100 index in London turning positive.
Stocks in the United States opened higher. Sentiment was lifted by better-than-expected quarterly results from a wide array of companies, including Comcast (http://topics.nytimes.com/top/news/business/companies/comcast_corporation/index.html?inline=nyt-org), Corning (http://topics.nytimes.com/top/news/business/companies/corning_inc/index.html?inline=nyt-org), Northrop Grumman (http://topics.nytimes.com/top/news/business/companies/northrop_grumman_corporation/index.html?inline=nyt-org) and Dow Chemical (http://topics.nytimes.com/top/news/business/companies/dow_chemical_company/index.html?inline=nyt-org), The Associated Press reported.
Investors have grown increasingly nervous about the fate of Greece and other economies that use the euro. A recent proposal by European governments to extend a 45 billion euro loan to help Greece pay its bills, together with a smaller pledge by the International Monetary Fund (http://topics.nytimes.com/top/reference/timestopics/organizations/i/international_monetary_fund/index.html?inline=nyt-org), has done little to calm the markets. Germany’s statement this week that it must first see more deficit reduction from Greece before fulfilling its pledge has only increased concerns that Europe is not united behind Greece.
“It’s like Lehman Brothers (http://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-org) and Bear Stearns (http://topics.nytimes.com/top/news/business/companies/bear_stearns_companies/index.html?inline=nyt-org),” said Philip Lane, a professor of international economics at Trinity College in Ireland, referring to the Wall Street failures that propelled the financial crisis (http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_crisis/index.html?inline=nyt-classifier) of 2008. “It is not so much the fundamentals as it is the unwillingness of the market to fund you.”
“The situation is deteriorating rapidly, and it’s not clear who’s in a position to stop the Greeks from going into a default situation,” said Edward Yardeni (http://topics.nytimes.com/top/reference/timestopics/people/y/edward_yardeni/index.html?inline=nyt-per), president of Yardeni Research. “That creates a spillover effect.”
In Lisbon, Prime Minister José Sócrates said the government would begin some fiscal consolidation measures this year that were initially planned for 2011, Reuters reported. Mr. Sócrates, a leader in the Socialist party, made the comments after a meeting with an opposition leader, Pedro Passos Coelho of the Social Democratic party. The Socialists will work with Social Democrats to respond to “a speculative attack on the euro and Portuguese debt,” Mr. Sócrates was quoted saying.
The German finance minister, Wolfgang Schäuble, was meeting the head of the International Monetary Fund, Dominique Strauss-Kahn (http://topics.nytimes.com/top/reference/timestopics/people/s/dominique_strausskahn/index.html?inline=nyt-per), and the European Central Bank (http://topics.nytimes.com/top/reference/timestopics/organizations/e/european_central_bank/index.html?inline=nyt-org) president, Jean-Claude Trichet (http://topics.nytimes.com/top/reference/timestopics/people/t/jeanclaude_trichet/index.html?inline=nyt-per), in Berlin Wednesday on Greece’s request to free up an international bailout.
“I don’t want to hide behind a rosy picture. It’s not easy,” Mr. Strauss-Kahn said at a news conference afterward, Reuters reported. “Every day which is lost is where the situation is going worse and worse.”
German lawmakers told reporters after the I.M.F. briefing that Greece will receive much more aid than initially expected, between 100 and 120 billion euros over three years. Mr. Strauss-Kahn declined to comment on the report.
Earlier, the European Union (http://topics.nytimes.com/top/reference/timestopics/organizations/e/european_union/index.html?inline=nyt-org) President, Herman Van Rompuy (http://topics.nytimes.com/top/reference/timestopics/people/v/herman_van_rompuy/index.html?inline=nyt-per), sought to calm nerves, stating during a trip to Tokyo that Greece should be able to receive financial aid soon to help ease its burgeoning debt load and keep the euro zone stable.
Later in the day, Mr. Strauss-Kahn was expected to join Chancellor Angela Merkel (http://topics.nytimes.com/top/reference/timestopics/people/m/angela_merkel/index.html?inline=nyt-per) and heads of the World Bank (http://topics.nytimes.com/top/reference/timestopics/organizations/w/world_bank/index.html?inline=nyt-org), the World Trade Organization (http://topics.nytimes.com/top/reference/timestopics/organizations/w/world_trade_organization/index.html?inline=nyt-org), the International Labor Organization (http://topics.nytimes.com/top/reference/timestopics/organizations/i/international_labor_organization/index.html?inline=nyt-org) and the Organization for Economic Cooperation and Development (http://topics.nytimes.com/top/reference/timestopics/organizations/o/organization_for_economic_cooperation_and_developm ent/index.html?inline=nyt-org) for a gathering that was previously scheduled but fortuitously timed to consider Greece’s increasingly dire situation.
Ángel Gurría, head of the O.E.C.D., said ahead of the meeting that the euro zone countries had to act “very fast.”
“It’s not a question of the danger of contagion,” he told Bloomberg television. “Contagion has already happened. This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.”
The problem is that it is not just Greece, which expects to receive international aid, but Portugal, Spain and other countries that must issue more debt soon.
“The issue is rollover risk,” said Jonathan Tepper of Variant Perception, a research group based in London and known for its bearish views on Spain. “Spain has to issue new debt to the tune of 225 billion euros this year. Forty-five percent of their debt is held by foreigners. So they are dependent on the kindness of strangers.”
Stock markets in Europe began to tumble late Tuesday after Standard & Poor’s cut Greece’s debt to junk level, warning that bondholders could face losses of up to half of their holdings in a restructuring. The agency also downgraded Portugal’s debt by two notches.
On Wednesday, Greece’s securities market regulator banned all short-selling on the Athens stock exchange for the next two months as investors sold off Greek assets following the downgrade.
The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down Wednesday more than 2 percent in early trading before recovering somewhat by midday; it dropped 3.7 percent on Tuesday.
In afternoon trading, the FTSE 100 in London was up 34 points, or 0.6 percent. The DAX in Frankfurt was down 10.05 points, or 0.2 percent, while the CAC-40 in Paris was flat.
Japan’s Nikkei index was down 2.6 percent, while the Hang Seng index in Hong Kong was down 1.5 percent Wednesday.
The euro fell to $1.3143 before bouncing back to $1.3237.
The yield on the 10-year Greek government bond narrowed to below 10 percent, having earlier surged through 11 percent, or more than three times the level of comparable German bonds. But it still closed higher on the day, alongside bonds of Portugal, Ireland, France, Italy and Spain.
Countries the world over sell bonds, which help cover the costs of things like social services and government workers’ pay. In developed countries, this debt is considered relatively safe because governments can raise taxes or fees to pay their debts. But government revenue has dropped sharply during the recession (http://topics.nytimes.com/top/reference/timestopics/subjects/r/recession_and_depression/index.html?inline=nyt-classifier), and levying higher taxes risks further slowing the economy.
With European budget deficits worsening, investors are now worried that — like American homeowners who borrowed too much in the last decade — some countries may have a hard time paying off their debts.
As economic growth picks up, the financial pressure should ease. Officials from the Greek finance ministry and staff from the I.M.F. are racing to conclude aid for Greece by May 19, a crucial date for its refinancing efforts.
To some extent, Europe’s paralysis in dealing with Greece is driving the unease and highlighting political divisions within Europe. Each step toward additional support for Greece has appeared to be too little too late.
Kenneth Rogoff, a former economist for the I.M.F. who has studied sovereign defaults, calls the latest assistance package puzzling. “They put their wad on the table, but they could have gone further,” he said of the international plan. “I never thought Europe could take the lead on this.”
As the European Union and the I.M.F. debate the politics of Greece’s laying off civil servants or persuading its doctors to pay income tax, it is becoming apparent that the international community may need to come up with a much larger sum to backstop not just Greece, but also Portugal and Spain.
“The number would be huge,” said Piero Ghezzi, an economist at Barclays (http://topics.nytimes.com/top/news/business/companies/barclays_plc/index.html?inline=nyt-org) Capital. “Ninety billion euros for Greece, 40 billion for Portugal and 350 billion for Spain — now we are talking real money.”
Mr. Rogoff says that the I.M.F. could commit as much as $200 billion to aid Greece, Portugal and Spain, but acknowledges that sum alone would not be enough.
In fact, analysts at Goldman Sachs (http://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-org) suggest that Greece will need 150 billion euros over a three-year period.
What a growing number of investors suggest is really needed is a “shock and awe” figure, enough to convince the markets that peripheral European economies will not be left to fail.
On Tuesday, a vice president of the European Central Bank said that the euro zone was facing its biggest challenge since the adoption of the Maastricht Treaty in 1997. Austerity measures in Greece and Portugal are already causing unrest there. Transportation workers in both countries protested on Tuesday, leaving train stations deserted because of strikes.
Officials from Standard & Poor’s said the main reason for downgrading the debt of Greece and Portugal was the prospect that forced austerity packages would be an even bigger drag on economic growth.
It is the most vicious of circles: stagnating economies are forced to cut back more, which reduces their ability to generate revenue and thus pay off their debts. As part of the euro zone, these countries do not have the ability to print their own money to stimulate growth and bolster exports, so increasing debt and an increasing prospect of default result.
Though they are under the most immediate pressure, Greece and Portugal are relatively small economies.
Given Spain’s size, its debt crisis is seen by many as the looming problem for world markets. On the surface, its debt load appears manageable. Its debt relative to gross domestic product, the broadest measure of its economy, is 54 percent — compared with 120 percent for Greece and 80 percent for Portugal.
But what Spain does have is the highest twin deficit, or combined budget and current account deficits, of any country in the world except Iceland, a reflection of how dependent it is on increasingly fickle foreign investors for financing. Spain has 225 billion euros in debt coming due this year — an amount that is about the size of Greece’s economy.
The base of investors willing to invest in the bonds of Spain and other distressed European countries is dwindling. Mohamed El-Erian, the chief executive of Pimco, one of the world’s largest bond investors, has said publicly that Pimco is no longer a buyer of Greek debt. Other Pimco executives have also said they have a negative view of the debt in countries on Europe’s periphery.
Given the losses that European investors have taken on Greek, Spanish and Portuguese bonds in recent months, it seems doubtful that such investors can be relied on to provide the capital these countries need.
Predicting where and when the next ripple will be felt is an inexact science. During the Asian crisis in 1997, Russia’s debt default took the world by surprise.
Some even worry that the next debt crisis may materialize in Britain or even the United States, where budget deficits and debt burdens are growing. Both countries are now issuing debt at reasonable levels of 4 percent. The long run of cheap financing may be coming to an end, though, even for the most creditworthy countries.

Jack Ewing contributed reporting from Frankfurt, Jack Healy from New York and David Jolly from Paris..






http://up.nytimes.com/?d=0/4/&t=&s=1&ui=75444&r=http%3a%2f%2fwww%2enytimes%2ecom%2f2010%2f04%2f2 9%2fbusiness%2fglobal%2f29euro%2ehtml%3fhp&u=www%2enytimes%2ecom%2f2010%2f04%2f29%2fbusiness% 2fglobal%2f29euro%2ehtml%3fhp%3d%26pagewanted%3dpr int http://www.nytimes.com/adx/bin/clientside/62cb879bQ2FB_jnyZ8Q20jQ5EQ22jzQ3FytQ22Q22Q3F_Q3F8Q 27t

odiug
April 29th, 2010, 10:59 PM
UK recession was???
why was???
it still is!
And don't think that the Pound is not closely linked to the Euro ... The Pound can drop with out affecting the Euro ... but the other way is very unlikely.
Great Britain thinks of it self as more or less independent, but it is not ... not with an economy based on financial services!

Alonzo-ny
April 30th, 2010, 11:16 AM
Two quarters of growth = not in recession.

MidtownGuy
May 5th, 2010, 09:40 PM
€1 = US $ 1.2839

I am going to be purely selfish and say I hope the euro continues to fall, as every drop is directly related to the amount of fun I will have while traveling this summer.:p

MidtownGuy
May 6th, 2010, 10:56 AM
1 Euro = 1.2728 U.S. dollars

Ninjahedge
May 6th, 2010, 11:14 AM
You sound like Canada.....

lofter1
May 6th, 2010, 11:15 AM
By the time of your summer trip they might pay you to come visit.

BBMW
May 6th, 2010, 04:43 PM
By the time of his summer trip, he may have to change more than one currency

scumonkey
May 6th, 2010, 05:28 PM
And if going to Greece...remember to dress accordingly;)
http://news.stepforth.com/2008-news/images/memorial_day.jpg

MidtownGuy
May 6th, 2010, 07:04 PM
CrossTalk on Greece: Euro - too big to exist? (http://www.youtube.com/watch?v=F5XIF2P5nJ8&feature=player_embedded)

^Video debate, 23 minutes long with a few different views represented.

MidtownGuy
May 13th, 2010, 07:26 PM
excellent:
_______

Euro slumps to new 14-month low

(AFP) – 1 hour ago
NEW YORK — The euro slumped to a new 14-month low against the US dollar amid persistent concerns over Europe's debt crisis.
The single European unit plunged to as low as 1.2517 dollars in New York, eclipsing the previous low of 1.2529 dollars struck a week ago, as investors sought the safe-haven greenback on fears of a sovereign default in the eurozone.
The euro settled at 1.2519 dollars at 2150 GMT in New York, from 1.2615 dollars late Wednesday.
The embattled currency's decline came despite a massive rescue package unveiled Monday amid fears that the perilous debt crisis in European Union member Greece could spread throughout the 16-nation eurozone.
The 750-billion euro (972-billion dollar) rescue package was arranged by the EU and the International Monetary Fund has failed to calm markets.
"Although the EU/IMF bailout plan for Greece generates hope that the EU debt contagion will be contained, investors are selling the euro on concern about EU growth outlook and speculation the EU fiscal crisis will force the ECB (European Central Bank) to delay its exit strategy," said analyst Michael Malpede of Easy Forex.
The shared eurozone unit has been dogged by concerns about the ability of eurozone nations like Greece, Portugal and Spain to impose tough austerity measures to curb sky-high deficits.
"The euro will have a very difficult time rallying as long as the laundry list of unanswered questions on the EU/IMF bailout package remains unaddressed," said Kathy Lien, currency research director of Global Forex Trading.
"Sovereign issues are center stage and until that recedes, a test of 1.2457 (dollars for the euro), the March 2nd low, appears likely," she said.
The market also received a scare after an explosive device went off outside a maximum security prison near Athens on Thursday, injuring one person.
The country has recently been the scene of violent protests over austerity measures linked to the IMF-European Union bailout.
Some experts argued that the euro was hit hard by the European Central Bank's government bond buying scheme which has sparked fears of higher inflation.
The ECB announced on Monday it would intervene in securities markets to buy government and private debt, a move that represents unprecedented and controversial support for troubled eurozone governments.
The initiative was aimed at halting speculative attacks in the eurozone and restoring stability to bond markets.
The euro also dropped against the Japanese currency, to 116.02 yen from 117.53 yen on Wednesday.
The dollar was down to 92.64 yen from 93.17 late Tuesday night.
The British pound fell to 1.4597 dollars from 1.4822 after Britain suffered a much larger than expected trade deficit and amid uncertainty about the new coalition government.
The dollar also rose to 1.1186 Swiss francs from 1.1112.

Ninjahedge
May 14th, 2010, 07:59 AM
I always love it when people think the solution to everything is violence.

"Oh, we are in debt up to our eyeballs and nobody can be given a job? Lets burn something! That should get us jobs!!!"


Phegh.

MidtownGuy
May 14th, 2010, 11:19 AM
If you're referring to Greece, it ain't like that. It isn't surprising though, if that is your impression of the place and people if you've never been there and exclusively rely on foreign corporate media to frame your view of what's going on.

Fabrizio
May 14th, 2010, 11:21 AM
"It isn't surprising though, if that is your impression of the place and people if you've never been there and exclusively rely on foreign corporate media to frame your view of what's going on."

^ now isn't that curious...

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

The lower Euro rate is great news for Italy as the tourist season arrives. And unlike Spain, Greece, Portugal it still has an important manufacturing sector and that will be helped too. And fortunately we've had something they have not had: much better fiscal policies under the Berlusconi government. If our Left had governed during these years we'd be Grease II.

Italy Not Among Most at Risk in Crisis, Moody’s Says (Update1)
May 07, 2010, 10:55 AM EDT
MORE FROM BUSINESSWEEK

May 7 (Bloomberg) -- Italy is not among the countries most at risk from Europe’s spreading debt crisis and its credit outlook for 2010 remains stable, Moody’s Investors Service said.
“The effort required for the country to keep the debt under control seems relatively modest compared to other European countries where corrections are brutal,” the rating company said in a report presented in Milan today.
Italy’s government yesterday trimmed its growth forecasts and revised up its debt projections. Italy must cut spending by 1.6 percent of gross domestic product between 2011 and 2012, or by about 25 billion euros ($32 billion) based on the new growth forecast of 1 percent this year, the Finance Ministry said. By contrast, Greece is being forced to cut more than 10 percentage points off its budget gap by 2014 to qualify for an aid package and avoid default.
There are “fundamental differences” among the economies of the euro-area periphery “as is reflected in our ratings,” Moody’s Senior Vice President Kristin Lindow said at the Milan conference. While Moody’s said its rating on Italian debt remains at Aa2 with a “stable” outlook, the country will still require “decisive” debt reduction, Moody’s said.
Past Success
In the past, “Italy has been able to generate quite important primary surpluses,” Moody’s sovereign-debt analyst Alexander Kockerbeck said in an interview. “It would be quite convincing to see primary surpluses coming back to levels between 3 percent and 4 percent.”
The rating company also said Italy’s banks are less exposed to the debt crisis and the country has “good credibility” in the markets. Moody’s had said yesterday in a report on the banking industry that sovereign-debt contagion may affect lenders in Greece, Portugal, Spain and Italy. Italy’s central bank reacted by saying that the country’s lenders are “robust” enough to weather “tensions, even of considerable intensity.”
Amid concern that contagion from Greece’s fiscal crisis will spread to high-debt countries such as Spain and Portugal, the extra yield, or spread, investors demand to hold Italian 10- year government bonds rather than German bonds climbed today to 159 basis points, the widest since 1997, before falling below 150 points.
Italy’s benchmark FTSE MIB Index has dropped more than 12 percent this week, the worst since March 2009. The movements in the markets are “totally unjustified” and an “exaggerated reaction,” Telecom Italia SpA’s Chief Executive Officer Franco Bernabe said yesterday.
“The Italian situation is very solid, robust, more robust than many other countries,” he said in a conference call.

----

Markets happy to buy €7.7bn of Italian debt[/SIZE]

Italian government bonds regarded as much safer bet than those of southern European neighbours, thanks to slow improvement in public deficit

A successful auction of Italian government bonds today has highlighted an apparent paradox — that, while other debt-laden southern European countries are being roasted in the markets, Silvio Berlusconi's Italy, with the biggest public debt of all, has so far been spared.

As a share of GDP, Italy's state borrowing, at more than 115%, is the world's seventh highest – higher than Greece's. Yet while investors were demanding a yield of 9.4% on 10-year Greek bonds, they were content with a return of less than 4.1% on their Italian equivalents.

Today's €7.7bn (£6.6bn) sale was the first by one of the eurozone's under-fire members since the ratings downgrades inflicted on Greece, Portugal and Spain. Demand outstripped supply by ratios of between 1.4 and 1.8 to one — better than the recent average in comparable Italian debt auctions. "Italy has not been the big culprit in recent years", said Giacomo Vaciago, professor of political economy at the Catholic University of Milan. "Though we have the image of a country with a lot of public debt, the present level is lower than it was 10 years ago."

Berlusconi's last government, from 2001 to 2006, was plagued by scares over its finances. But since he returned to office two years ago, his finance minister, Giulio Tremonti, has succeeded in enforcing a more prudent approach. The government responded to the global crisis with stimulus packages that helped keep budget deficits in 2008 and 2009 to half those of Greece.

Last month, alarm bells rang when it emerged that, for the first time in almost 20 years, Italy was running a "primary deficit": even before interest payments, government spending was exceeding revenue. But there was less disquiet in the markets than might have been expected, for two reasons: first, because Italy's private indebtedness is lower than most other developed nations'; and, second, because most Italian state debt is actually held by its own citizens. As Vaciago says: "Italians don't go to the bank to get a loan, but to buy government paper." This means that, proportionately, Italian bonds weigh less heavily than Greek government securities in the portfolios of foreign banks, and are arguably less easy to speculate against.

"[Italy] is the biggest bond market in Europe and the third largest economy. It is not Greece or Portugal," Kenneth Broux, markets economist at Lloyds TSB said.

A Carnegie Endowment report last week argued that the biggest threat to its public finances was the scant prospects for growth. Italy, it noted, had lost "as much competitiveness as Greece since joining the Euro area. Italy's unit cost of labour rose 32% from 2000 to 2009, comparable to Greece's 34% rise over the same period."

Historically, Italy has managed to export its way out of trouble. But there are doubts over whether it can do so this time: an EU report last year found that in the 10 years to 2008, exports of goods and services grew more slowly in Italy than in any other member country.

Structural reform might offer a way out. But, like all too many other southern European politicians, Berlusconi and Tremonti have been deeply reluctant to court the political unpopularity such changes would inevitably bring. "Not even when you have a centre-right government in this country do you get centre-right reform," said Vaciago.

http://www.guardian.co.uk/business/2010/apr/29/italy-government-bond-sale

lofter1
May 14th, 2010, 11:45 AM
If Moody's says all is good, then who's to worry?


Italy Not Among Most at Risk in Crisis, Moody’s Says

After all, Moody's (http://www.businessweek.com/news/2010-05-14/credit-ratings-canada-telcom-cuomo-subpoenas-compliance.html) has been nothing but helpful in assuring that the financial sector of the US stays strong and vibrant and that the banks here maintain their trusted position as leaders in our Free Market Capitalist economy.

Fabrizio
May 14th, 2010, 12:01 PM
I'm not worried ...at least until the Milan collections feature riot gear.

MidtownGuy
May 14th, 2010, 12:18 PM
"It isn't surprising though, if that is your impression of the place and people if you've never been there and exclusively rely on foreign corporate media to frame your view of what's going on."

^ now isn't that curious...


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

Not curious at all, Signor Instigator. I've actually been to Italy several times, if you're peevishly referring to our previous disagreements about your curious little land.

Now, don't instigate a new argument (though I know after a certain time has passed without one, you start to miss me).

lofter1
May 14th, 2010, 12:23 PM
Love is in the air ^

MidtownGuy
May 14th, 2010, 12:25 PM
If Moody's says all is good, then who's to worry?



After all, Moody's (http://www.businessweek.com/news/2010-05-14/credit-ratings-canada-telcom-cuomo-subpoenas-compliance.html) has been nothing but helpful in assuring that the financial sector of the US stays strong and vibrant and that the banks here maintain their trusted position as leaders in our Free Market Capitalist economy.

Anyway, I would like to see Italy crash and burn for a while. Teach its haughty people a little humility.

Fabrizio
May 14th, 2010, 12:31 PM
"I've actually been to Italy several times "

Whoa... who knew? Those "several times" must have been quite instructive.

I really had the impression you were "relying on foreign corporate media to frame your view of what's going on". Sorry.

------

(Italy world renown for it's art, culture, food, drink and haughty people. ......Would make a great slogan for the tourist bureau. LOL.)

MidtownGuy
May 14th, 2010, 12:48 PM
Poor old sad Fab. Once again with nothing better to amuse himself, except perpetuating silly tit for tats in typically arrogant fashion. Did I say haughty? Oh yeah. ^Example number one, calling from his bat phone in sunny Tuscany.

Get back on topic and quit the clownish freak show.

Fabrizio
May 14th, 2010, 12:55 PM
Yes, back to Italy crashing and bur... er... excuse me, back to Greece crashing and burning:

Markets Slump as Euro Falls and Greece Jitters Return

By BETTINA WASSENER
Published: May 14, 2010

The beleaguered euro fell to an 18-month low and stocks were off sharply around the world on Friday amid lingering nervousness about the state of European nations’ finances and the pace of the global recovery.

The euro fell below $1.24, its weakest level against the dollar since November 2008, only days after a major European initiative meant to restore confidence in the currency and quell fears that a sovereign debt crisis could spread.

Stocks slumped on Wall Street, following the day’s trend in Asia and Europe. Shortly after noon, the Dow Jones industrial average was off 233.38 points, or 2.2 percent, at 10,549.57. The broader Standard & Poor’s 500-stock index was down 2.6 percent, and the technology-heavy Nasdaq composite was 2.9 percent lower.

Major indexes in Europe opened lower on Friday and accelerated their losses as the day progressed. By the end of the day, the Euro Stoxx 50 index of blue chips was down 3.7 percent.

In France, the CAC 40 in Paris slumped 4.6 percent, and in London, the FTSE 100 lost 3.1 percent. The benchmark DAX index in Germany was also down about 3.1 percent.

A cautious outlook from Sony, which released earnings after the close of trade on Thursday, set the negative tone in Asia by shining the spotlight on how the massive currency swings set off by the global jitters about Greece’s debt could affect companies as far away as Japan.

The consumer electronics giant, which makes about 25 percent of its sales in Europe, forecast a profit of 50 billion yen, or $541 million, for the current business year, but also warned that the European troubles could jeopardize its return to profit.

This helped revive concerns about the impact of the still-feeble economic recovery in the United States, and of the huge savings efforts being put in place by European governments struggling to reduce their budget deficits.

And while the weak euro may be welcome news for European exporters, as it makes their goods cheaper for consumers overseas, it is a worry for non-European companies that rely heavily on sales to Europe, like those in export-dependent Japan and China.

The losses capped a tumultuous week in the global financial markets, which on Monday received much-needed support from a giant financing package that was designed to aid some of Europe’s most deeply indebted countries and stave off a potential debt default.

But sentiment has remained fragile, with several ups and downs during the course of the week. Although investors welcomed the global efforts to contain the crisis, they remained intensely nervous of the long-term costs and the prospects of a slowdown in Europe’s already weak recovery.

In a research note Friday, analysts at Barclays Capital summed up the overall picture: “Calm after the tempest, but still a perilous climb.”

By Friday, investor sentiment had turned decidedly negative again: Asian stocks were mostly down, and the sell-off gathered pace as the European day progressed.

The benchmark Nikkei 225 index ended 1.5 percent lower, and Sony shares slumped 6.8 percent.

Elsewhere in the region, the stock markets in Taiwan and South Korea edged up less than 0.1 percent after similarly muted losses earlier in the session — mirroring the mixed performance shown by many of the world’s markets all week. The Straits Times index in Singapore slipped 0.4 percent.

“What surprised me was that there was no real feel-good factor,” said Markus Rösgen, head of regional strategy at Citigroup in Hong Kong, referring to the global market reaction to the bailout package. “But at the end of the day, Europe has written an insurance policy, rather than pumping actual money into the market.”

Many analysts also believe a debt default — or a rescheduling of some of Greece’s debt — is still likely further down the line. This is continuing to weigh on the euro, which has received little respite from the bailout news. Since the start of the year, the European currency has fallen 13 percent against the dollar and 14 percent against the yen.

http://www.nytimes.com/2010/05/15/business/15markets.html?ref=global-home

Ninjahedge
May 14th, 2010, 01:10 PM
If you're referring to Greece, it ain't like that. It isn't surprising though, if that is your impression of the place and people if you've never been there and exclusively rely on foreign corporate media to frame your view of what's going on.

I actually have been there and I thought it was very nice. Granted it was only Mikanos.....

But "nice" or not, what's up with the burning of the bank?

This may not be country wide, but it has happened in many nations besides Greece, including our own.

Why must you turn my generalization of the human race into some sort of slander against Greece itself?

Oh yeah, I forgot! ;)

MidtownGuy
May 14th, 2010, 04:45 PM
Mykonos during tourist season isn't likely to shed much light on the real Greek psyche but at least you've set foot there, and probably noticed under normal circumstances Greeks tend to be laid back and more likely to knock down a bottle of ouzo than knock down a bank.


Why must you turn my generalization of the human race into some sort of slander against Greece itself?


I began with a conditional "If you're referring to Greece..."
because although your statement was general, it did happen within a context where Greece is presumably the location of the "violence" and "bank burning" in the news now.


"This may not be country wide, but it has happened in many nations besides Greece, including our own."

and of course I agree with that^.

MidtownGuy
May 15th, 2010, 11:41 AM
Bet on the Greenback to Beat the Euro


Some see the euro sinking to $1 early next year. Where the havens are.

EUROPE'S $1 TRILLION BAILOUT HAS BREATHED new life into the Old World's assets, boosting everything from bonds to stocks. Missing from the celebration, however, is the Continent's common currency, which jumped momentarily above US$1.30 last week, before slumping below $1.24.

Consider that a preview.
The euro, already at a four-year low against the dollar, is likely to go lower. The bold, €750 billion rescue package and broad international collaboration should stabilize European markets and hush the talk of a breakup. Yet that won't stop the currency from careening this year toward the $1.18 level, where it made its 1999 debut.
For a start, the euro's biggest champion -- the European Central Bank -- has caved to political pressure and, among other things, will begin buying sovereign bonds in the market. This transfers the risk of default from fiscally stretched nations like Greece, Portugal and Spain to the euro zone as a whole. And the ECB has to fund it by effectively printing euros, further devaluing the currency.


More important, while the bailout buys time for indebted nations, it doesn't make them any more solvent; governments still have to slash budgets despite listless economies. "Spain, Italy and Portugal don't have the same degree of fiscal problems as Greece, but they'll be under similar pressure to undertake fiscal tightening," says Barclays Capital's currency strategist Aroop Chatterjee. "This will weigh on growth in these countries for a substantial period."


The Catch-22: If belt-tightening works, Europe will have to replace waning domestic consumption with foreign demand, and a weaker euro will make exports more competitive. Yet "if fiscal-austerity plans don't work, the euro loses credibility. Either way, the euro weakens," says Marc Chandler of Brown Brothers Harriman.
The interest-rate outlook also favors the greenback. The U.S. may have a knack for keeping borrowing costs artificially low and swelling asset bubbles, but even its benevolent central bank will have to consider raising rates as the economy expands for a fourth straight quarter and as employers hire again. In contrast, a big swath of Europe is grappling with sluggish growth, and Spain is plagued with 20% unemployment (see table below). The ECB can't easily boost rates before the U.S. does.
THE BUCK HAS BENEFITED, of course, from being the fairer of two trolls, and problems with escalating government debt aren't confined to Europe. But the U.S. can print money more efficiently to goose its economy than can a fractious huddle of neighboring nations.


Barclays, for one, sees the euro declining to $1.20 in three months. Longer term, the euro should regain some luster if financial reform succeeds, but the damage to its reputation could prove more lasting. The euro's birth in 1999 gave central banks a viable alternative reserve currency, and over the past decade, the dollar's share of global reserves shrank from 72% to 62% -- while the euro's rose from 18% to 28%. However, during the fourth quarter, even before Greece was "the word," central banks began allocating 71% of new reserves to the buck, up sharply from the third quarter's 48%. That reflected a flight to safety, of course, but the reversal could have legs.
"Large investors will think twice about further investment in the euro, at least until such uncertainties are resolved," notes BNP Paribas' currency strategist, Hans-Guenter Redeker. Most investors have yet to pencil in much weakness beyond this year, and a survey of global banks pegs the euro at $1.30 for 2011. Still, dollar bulls like BNP and Brown Brothers see the euro pushing down to parity, or $1, early next year.


Away from Europe, however, the greenback should continue to struggle, especially against its emerging-market counterparts. "Old safe-haven currencies" -- namely the dollar, euro and yen -- "are getting competition from new safe-haven currencies," says Nomura Securities' Jens Nordvig.
Currencies other than the dollar, euro or yen make up just 3% of global reserves, but their share has doubled in a decade. With public debt at just 48% of projected 2010 GDP in smaller G-10 industrialized countries and 41% in emerging markets, it's no surprise investors are looking there for new safe bets. The Canadian dollar, Swedish krona and Australian dollar are all issued by strong governments in countries with stable inflation and robust economic growth. Nordvig sees the trio as tomorrow's havens.

195Broadway
May 15th, 2010, 05:04 PM
Damn, I hope the Greek auto industry doesn't fold. I have been eyeballing the Minotaur 2000 for a while. :(

MidtownGuy
May 15th, 2010, 07:25 PM
9468
The Minotaur?


Seriously though, Greece is very small. Extremely small. Just a bit more than 11 million people, so no, it's not exactly an industrial powerhouse. It has other value though (not easily reflected on a ledger sheet).

Ninjahedge
May 16th, 2010, 09:18 PM
Mykonos during tourist season isn't likely to shed much light on the real Greek psyche but at least you've set foot there, and probably noticed under normal circumstances Greeks tend to be laid back and more likely to knock down a bottle of ouzo than knock down a bank.


Actually, you get quite a different feeling of Mykanos when you walk past all the white buildings and get a can of drink at the gas station at the top of the hill..

Night and day. Reminded me a bit of Florida/Texas/Cali once you get beyond the nicey-nicey and look at the actual working parts of the machine....




I began with a conditional "If you're referring to Greece..."

I know... That's kind of what changes the statement! ;)


and of course I agree with that^.

/me marks calendar. :D

MidtownGuy
May 16th, 2010, 11:06 PM
Actually, you get quite a different feeling of Mykanos when you walk past all the white buildings and get a can of drink at the gas station at the top of the hill..
Night and day. Reminded me a bit of Florida/Texas/Cali once you get beyond the nicey-nicey and look at the actual working parts of the machine....Say what? ...actually, past the top of the hill are just more whitewashed buildings with traditionally colored windows and bougainvillea clinging to them. Roads no bigger than a Florida driveway. There's no "machine". On Mykonos? Nah...What island did you visit, again?

That "gas station" (you must be talking about the scooter rental place past the bus top) is also an all white building (w/ colorful trim) because all the buildings on the island are that way. One thing about Mykonos is complete continuity of architectural style both in the town and across the island. It's the law. It's traditional for millennia. No big fluorescent gas stations with multiple pumps and a drive through like some Texaco type station exist on Mykonos. The people would not accept it. Food items are delivered to restaurants on scooters. The number of full sized cars on the island is tiny by any standards, and the most frequent mode of travel is by scooter. As far as the roads on the island go, they are mostly one lane affairs.

It's nothing like the western style development on an island like Ibiza, much less Texas or California or Florida. LOL.

But I'm curious about your time on Mykonos. Did you just just stroll through town on a cruise ship stopover? How long was your visit, just enough time to buy a drink, snap the windmills, and head back to the ship? What beaches did you visit? Most importantly, did the visit include night time? Preferably around 11pm-12:00pm when dinner starts and people are just getting warmed up? I always feel sad for the cruise ship folks...they miss everything!


/me marks calendar.Actually we agree on lots of things, but usually I don't comment as much when I'm in total agreement as when I see a gaping hole in logic. Probably human nature. I just nod my head, send you a mental "amen, brother" and keep reading.

MidtownGuy
May 16th, 2010, 11:11 PM
Euro continues fall against dollar in early Asia trade (http://www.marketwatch.com/story/euro-extends-fall-vs-dollar-in-asian-trading-2010-05-16?reflink=MW_news_stmp)

The euro extended its losses against the U.S. dollar in early Asian trading Monday, as worries about Europe's fiscal situation persisted. (http://www.marketwatch.com/story/euro-extends-fall-vs-dollar-in-asian-trading-2010-05-16?reflink=MW_news_stmp)

Ninjahedge
May 17th, 2010, 07:53 AM
Actually MTG, I am referring to a gas station, that was white, but only in memory. We walked up and out of all the nice looking buildings into a scrubby looking area where we saw a few scooters zipping around, but no real rental shop that I remember.

We do that a lot on vacation for some reason, walk past the invisible velvet ropes and start seeing how the people who live and work there....live and work! It is a real eye opener!

Regretably, we were only on a day stop with the boat riders. I think renting a scooter would have been really nice, as we would have been able to go further. In regards to the whole "white is a rule", lets just say the definition of white gets a little different the further you get from the water. "Whiter than the dirt around you" was what a lot of the buildings reminded me of. The traffic also looked more....practical).

I really should have taken some pictures, but I guess I was in "take a picture of pretty things" mode... :(

(This is pretty much where we stopped and we turned around...)

9469

Anywhoo, back on topic!

Fabrizio
May 17th, 2010, 05:06 PM
Seriously though, Greece is very small. Extremely small. Just a bit more than 11 million people, so no, it's not exactly an industrial powerhouse.

It should be noted that Greece's population is larger than countries like Sweden, Belgium, Switzerland, Norway, Denmark etc. To see how it ranks on exports compared to those :

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

MidtownGuy
May 17th, 2010, 05:20 PM
walk past the invisible velvet ropes and start seeing how the people who live and work there....live and work! It is a real eye opener!you don't get it. They live and work in the same white buildings.


In regards to the whole "white is a rule", lets just say the definition of white gets a little different the further you get from the water. "Whiter than the dirt around you" was what a lot of the buildings reminded me of. I stop there almost every year in early September for a week or so, and that has never been my impression. In fact, what surprised me on my first visit was how the buildings are nicely whitewashed all the way up the hills and into the interior of the island, including the village of Ano Mera and the stray villas in between. Let's just say if you saw a non-white building (other than natural stone) such as in the foreground of your picture, it was probably under construction or renovation. They are all freshly whitewashed every spring, and some of the most extravagant cycladic homes and hotels are on the hills at the edge of town. In the photo you are standing on the hills a short distance from the "New Port".
These photos are of a relatively close area to there similar in distance from the water:
http://farm5.static.flickr.com/4037/4616060065_559ff85c89_o.jpg
No dirty buildings in sight. This is a pathway that leads down to the water in the area above the port:

http://farm5.static.flickr.com/4031/4616674842_846bc12b9b_o.jpg
Things are kept tidy.

The "ugly" side of Mykonos...
This is my vote for the junkiest block on the whole island, at the edge of Mykonos Town, up the hill, where everyone rents their bikes and other vehicles:
http://farm4.static.flickr.com/3366/4616090051_7f8f451e54_o.jpg

^It's rough, utilitarian, and totally uncharacteristic of the rest of the island, but even this place (a bike/car rental/ repair shop)... is whitewashed and kept clean. Culturally, it's a matter of pride. People whitewash and scrub everything, and if they don't, their neighbors would probably ask them if they were not feeling well.

A morning ritual all over the island:
http://farm5.static.flickr.com/4009/4616781392_45514cebe0_o.jpg

Practically, a fresh coat of whitewash each season has a temperature cooling effect indoors during the intense summer heat. Trust me, "the definition of white" doesn't change on this little island as far from the water as you want to go. The locals wouldn't have it.


lets just say the definition of white gets a little different the further you get from the water.heck no! that would be inaccurate. Perhaps you have Mykonos confused with Ibiza or Bodrum.

MidtownGuy
May 17th, 2010, 05:34 PM
It should be noted that Greece's population is larger than countries like Sweden, Belgium, Switzerland, Norway, Denmark etc. To see how it ranks on exports compared to those :

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

It's noted by just about everybody already that there are differences between a country like Norway and Greece. On so many levels. Even the basic difference between an Eastern Mediterranean mentality and that of the cold efficient North. People in Greece hold on to different values. God bless 'em. And it's more and more clear that they were not ready to be allowed into the euro zone.

Fabrizio
May 17th, 2010, 05:40 PM
^ that is why equating it's SIZE with industrial output is so ridiculous.


Seriously though, Greece is very small. Extremely small. Just a bit more than 11 million people, so no, it's not exactly an industrial powerhouse.

MidtownGuy
May 17th, 2010, 05:43 PM
I guess I was supposed to list every single reason that output was less in the very same breath. Don't YOU be ridiculous. Size is just one of the factors quite obviously.

Fabrizio
May 17th, 2010, 05:52 PM
Oh. I see. Please excuse me for quoting and responding to what you actually wrote.

-----------

Euro news in today's Times:

Fears Intensify That Euro Crisis Could Snowball
By NELSON D. SCHWARTZ and ERIC DASH
Published: May 16, 2010


After a brief respite following the announcement last week of a nearly $1 trillion bailout plan for Europe, fear in the financial markets is building again, this time over worries that the Continent’s biggest banks face strains that will hobble European economies. In a sign of the depth of the anxiety, the euro fell Friday to its lowest level since the depth of the financial crisis, as investors abandoned the currency as well as stocks in favor of gold and other assets seen as offering more safety.

In trading early Monday morning, the euro declined again, managing at one time to reach a four-year low relative to the dollar. The president of the European Central Bank, Jean-Claude Trichet, in an interview published Saturday, warned that Europe was facing “severe tensions” and that the markets were fragile.

For Europe’s banks, the problems are twofold. Short-term borrowing costs are rising, which could lead institutions to cut back on new loans and call in old ones, crimping economic growth. At the same time, seemingly safe institutions in more solid economies like France and Germany hold vast amounts of bonds from their more shaky neighbors, like Spain, Portugal and Greece.

Investors fear that with many governments groaning under the weight of huge deficits, the debt of weaker nations that use the euro currency will have to be restructured, deeply lowering the value of their bonds. That would hit European financial institutions hard, and may ricochet through the global banking system.

Bourses and bank shares in Europe plunged on Friday because of these fears, with Wall Street following suit. Shares were also down in Tokyo and Australia in early trading on Monday. “This bailout wasn’t done to help the Greeks; it was done to help the French and German banks,” said Niall Ferguson, an economic historian at Harvard. “They’ve poured some water on the fire, but the fire has not gone out.”

The European rescue plan, totaling 750 billion euros, is intended to head off the risk of default but would vastly increase borrowing. That could hamstring Europe’s nascent recovery. Indeed, it was too much debt that caused the problem in the first place: a new report by the International Monetary Fund warns that “high levels of public indebtedness could weigh on economic growth for years.”

The world’s budget deficit as a percentage of gross domestic product now stands at 6 percent, up from just 0.3 percent before the financial crisis. If public debt is not lowered back to precrisis levels, the I.M.F. report said, growth in advanced economies could decline by half a percentage point annually. To be sure, not all of the trends are negative. A lower euro will actually make European exports — be it German automobiles or Italian leather — more affordable and more competitive around the world. And Greece, Spain and Portugal took the first steps last week toward enacting austerity measures that would reduce their budget deficits.

Those steps were not enough to prevent a flare-up in money market funds, a crucial but little-noticed corner of the financial system in which American investors provide more than $500 billion in short-term loans to help European banks finance their daily operations. The cash comes from conservative funds that hold the savings of big American corporations and individual American consumers. So far, the proposed rescue package has failed to ease worries at these funds, which have cut back on loans to European banks and are demanding higher rates and quicker repayment. “More people are making the yes or no decision to pull out of the market and keep their money closer to home,” said Lou Crandall, the chief economist of Wrightson ICAP, a money market research firm.

Initially, it was Greek and Portuguese banks that got the cold shoulder from American lenders. But over the last two weeks big banks in Spain, Ireland and Italy have struggled to secure short-term funds from the United States as the anxiety has spread. By Friday, even banks in solid European economies like France, Germany and the Netherlands were caught in the undertow, according to market analysts and traders. “Investors are waiting to see whether the stability package can be put into place,” said Alex Roever, a short-term fixed-income analyst for J.P. Morgan Securities. “Until investors get a better feel, we are hung in limbo.”

Because of the pullback by American lenders, the rate banks charge one another for overnight loans, known as Libor for the London Interbank Offered Rate, has been steadily climbing. And the significance of Libor stretches far beyond Europe’s shores: that is the benchmark that helps determine the interest rate on many mortgages and credit cards held by American consumers.

Bank borrowing rates are still well below where they were at the height of the crisis. Fears that the problems in Europe could rebound in the United States, however, led the Federal Reserve to restart lines of credit to the European Central Bank and other central banks in conjunction with the European rescue package announced a week ago.

The move ensured that European institutions would be able to borrow dollars to lend to their clients, but that is more expensive than relying on private investors. “We didn’t do so out of any special love for Europe,” Narayana R. Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, told a group of small-business owners in Wisconsin on Thursday. “We’re American policy makers, and we make decisions to keep the American economy strong.” However, he said, “The liquidity problems in European markets were showing signs of creating dangerous illiquidity problems in our own country’s financial markets.”

That is not the only domino that could fall. While the direct exposure of American banks to Greece is minimal, American financial institutions are closely intertwined with many big European banks, which in turn have large investments in the weaker European nations. For example, Portuguese banks owe $86 billion to their counterparts in Spain, which in turn owe German institutions $238 billion and French banks $220 billion. American banks are also big owners of Spanish bank debt, holding nearly $200 billion, according to the Bank for International Settlements, a global organization serving central bankers. Furthermore, financial policy makers find themselves running out of weapons in their arsenal.

After borrowing trillions to stimulate their economies and ease credit concerns during the last wave of fear in late 2008 and early 2009, governments cannot borrow trillions more without risking higher inflation and shoving aside other borrowers like individuals and companies. Short-term interest rates, already near zero in the United States, cannot be lowered any further. And vital steps like raising taxes or cutting spending increases could snuff out the beginnings of a recovery in northern Europe and worsen the pain in recession-battered economies like Spain, where unemployment recently passed 20 percent. With the exception of wartime, “the public finances in the majority of advanced industrial countries are in a worse state today than at any time since the industrial revolution,” Willem Buiter, Citigroup’s top economist, wrote in a recent report. “Restoring fiscal balance will be a drag on growth for years to come.”

http://www.nytimes.com/2010/05/17/business/global/17fear.html?ref=global-home

MidtownGuy
May 17th, 2010, 06:01 PM
Oh. I see. Excusing me for quoting and responding to what you actually wrote.

Are you done editorializing on what you think my meaning was? What I actually write is one thing, how you spin it is another. Always good for a chuckle though.

Are you ready to stop bickering now, or would you like to continue it into another comment, to the great consternation of everyone else here? Another comment about what I said? Come on, get that last word in...(and then you can pop in another NYT article to "get back on topic.")

MidtownGuy
May 17th, 2010, 06:03 PM
Now as for my summer holiday, it's looking better and better by the day! Some are projecting the euro to be around 1.20 by then, if not lower.

lofter1
May 17th, 2010, 06:05 PM
I'm still trying to figure out who is the biggest flirt :confused:

Fabrizio
May 17th, 2010, 06:14 PM
^I'm still working on "Seriously though, Greece is very small. Extremely small. Just a bit more than 11 million people, so no, it's not exactly an industrial powerhouse."

The first one to figure that out wins a Minotaur.

MidtownGuy
May 17th, 2010, 06:17 PM
Another comment about what I said? Come on, get that last word in...


^I'm still working on "Seriously though, Greece is very small. Extremely small. Just a bit more than 11 million people, so no, it's not exactly an industrial powerhouse."

LMAO. Lofter: he's definitely the most persistent flirt. He just can't let it go.

Fabrizio
May 17th, 2010, 06:24 PM
The last time I flirted with a gay guy, disco was still big.

MidtownGuy
May 17th, 2010, 06:40 PM
And you were wearing your very best hoop earrings and a gold lamé pant suit.
Memories...

Fabrizio
May 18th, 2010, 03:54 AM
... like the corners of my mind....

(Oh God, now he's breaking into his Streisand impersonation. Heaven help us.)

Ninjahedge
May 18th, 2010, 08:12 AM
Whatever.

I guess I was just wearing Blue Collar sunglasses that somehow made me see something else besides white.

I must have been tripping.

MidtownGuy
May 18th, 2010, 09:36 AM
(Oh God, now he's breaking into his Streisand impersonation. Heaven help us.)Actually papi, that's more your speed. I figured you'd appreciate the reference to your long lost heyday.

MidtownGuy
May 18th, 2010, 09:41 AM
Whatever.

I guess I was just wearing Blue Collar sunglasses that somehow made me see something else besides white.

I must have been tripping.

Well, if you locate any pictures of the seedy, dirty underbelly of the "machine":rolleyes: in Mykonos, let me know.

Ninjahedge
May 18th, 2010, 09:56 AM
Yeah, next time I visit.

And I never said "Underbelly" or "seedy".

I am the only one that puts anything in my mouth, TYVM. :rolleyes:

Binky Bainbridge
May 25th, 2010, 12:53 PM
I don't see how these protesters think Greece will ever clear up it's financial problems without the measures it is taking.
Greece is incapable of clearing up its financial mess because its steeped in institutional corruption, it should never have been allowed to join the euro in the first place, but there again that applies to several other countries as well.

Fabrizio
June 7th, 2010, 10:55 AM
And now Britain sounding scary:

From today's Times UK :

Cameron fingers culprits for Britain’s £770bn debt pile

Britain’s debt stands today at £770 billion and will nearly double within five years to £1.4 trillion without radical action to cut public spending, David Cameron said today.

The Prime Minister seized on the £70 billion cost to the taxpayer of servicing these obligations in five years’ time, a “huge drain on our public finances” and a figure he accused Labour of keeping hidden from the public. The Institute for Fiscal Studies calculated in March that debt interest payments would rise to £73.8 billion in 2014/15.

“Today we spend more on debt interest than we do on running schools in England. But £70 billion means spending more on debt interest than we currently do on running schools in England plus climate change plus transport,” he said.

“Interest payments of £70 billion mean that for every single pound you pay in tax, 10 pence would be spent on interest.

“Is that what people work so hard for, that their taxes are blown on interest payments on the national debt? What a terrible, terrible waste of money. So, this is how bad things have got. This is how far we have been living beyond our means. This is the legacy our generation threatens to leave the next.”

Mr Cameron has today begun readying the public for the difficult choices ahead, saying the British way of life will have to change and warning that public spending cuts will touch every citizen.

He used a speech at the Open University in Milton Keynes this morning to paint a near-apocalyptic picture of a country in which wasteful public spending has run up unsustainable debts.

The Prime Minister aimed to alert the public to the pain which will be caused by slashing government services, in order to minimise the chance of strikes and disruption when the cuts begin.

Mr Cameron made clear that his deputy, Nick Clegg, will be instrumental in ensuring the pain was evenly and fairly distributed around the regions and sections of society - a poisoned chalice in view of the cuts needed.

“We’ve also been clear about how we must do it – as the Deputy Prime Minister has said – in a way that protects the poorest and most vulnerable in our society; in a way that unites our country rather than divides it; in a way that demonstrates that we’re all in this together.”

Mr Cameron argued that the boom under Labour was an illusion. The boom in financial services was a mirage, he said, because it was “conjured from years of low interest rates, cheap money and a bubble in the price of assets like houses.”

It was also maintained by unsupportable levels of immigration, which at one point accounted for a fifth of our economic growth while millions were dependent on welfare payments, as well as a boom in government spending, Mr Cameron said.

“So when the inevitable happened, and the boom did turn to bust this country was left high and dry, with a massive deficit that threatens to loom over our economy and our society for a generation.”

Mr Cameron singled out particular government departments where there have been inappropriate public spending, which are likely targets for the Comprehensive Spending Review.

- The Department for Work and Pensions, which increased benefit spending by over £20 billion, he said, accepting as a fact of life the eight million people who are economically inactive.

- The Ministry of Defence, which allowed 14 major projects to over-run, which at the last count are £4.5 billion over budget.

- The Department of Health, which almost doubled the number of managers in the NHS.

- The Treasury, which sanctioned all of this because it published growth forecasts that were far more optimistic than independent forecasts.

Mr Cameron continued: “If we fail to confront our problems we could suffer worse – a steady, painful erosion of confidence in our economy.

“Today, almost every major country in the world is focusing on the need to cut their deficits.

“And the G20 has called on those countries with the biggest deficits to accelerate their plans for reducing them.

“If in Britain investors saw no will at the top of government to get a grip on our public finances, they would doubt Britain’s ability to pay its way.”

After the speech, Mr Cameron reiterated the case for raising Capital Gains tax, making an argument likely to dismay the right of his party.

“If you read any of the things written by anyone about capital gains tax ... they all agree that there is a massive leakage of revenue that takes place when you have a very low rate of capital gains tax and a high rate of income tax.”

Public sector unions reacted with fury to the speech. The chief executive of Unison, Dave Prentice, described it as “a chilling attack on the public sector, public sector workers, the poor, the sick and the vulnerable, and a warning that their way of life will change.

“There was nothing in this speech that told the rich, the banking and financial sector or the City speculators that their privileged way of life will change.”

Hugh Lanning, Deputy General Secretary of the Public and Commercial Services Union, called Mr Cameron’s speech is a “smokescreen”.

“The debt wasn’t caused by the public sector: it was caused by the banks and the financial crisis,” he added. “The best way to cut public expenditure is to grow employment, not to put people on the dole.” The Government should also raise money by cracking down on tax avoidance, he said.

The Government is due to present an emergency Budget on June 22 and the results of the Comprehensive Spending Review in the autumn.

Tomorrow George Osborne, the Chancellor, will announce a public consultation on where the cuts should fall. It was also reported this morning that he is considering setting up a “star chamber” before which ministers would have to justify the cuts in their departments.

http://www.timesonline.co.uk/tol/news/politics/article7145376.ece

---

(And if you think that's bad, I have new articles about Berlusconi and that prostitute. I'll post 'em later)

Ninjahedge
June 7th, 2010, 11:46 AM
This is interesting:


Mr Cameron made clear that his deputy, Nick Clegg, will be instrumental in ensuring the pain was evenly and fairly distributed around the regions and sections of society

You would NEVER be able to phrase it like that here. Every politician here either "eases the pain" or makes the "other guy" hurt, never the tax-paying, hard working, red blooded American!!! (Screw those green-bloods!!!!).

Anywho, as bad as Englan has it, at least our Prim and Proper Fore-Fore-Fathers country has the bollocks to say something a little closer to reality than our own stagemasters.

212
June 7th, 2010, 10:37 PM
And now Britain sounding scary:

Not really. (http://krugman.blogs.nytimes.com/2010/04/30/why-isnt-britain-in-more-trouble/) (Link is from April, but it still holds true.)

http://upload.wikimedia.org/wikipedia/commons/thumb/3/30/Keep_Calm_and_Carry_On_Poster.svg/200px-Keep_Calm_and_Carry_On_Poster.svg.png

Alonzo-ny
June 8th, 2010, 05:36 AM
Remember the UK owns large parts of RBS and Lloyds and all of Northern Rock. When it sells these shares in a year or two we could end up making a profit out of the whole fiasco and hopefully that can pay a large part of that debt.

Fabrizio
June 8th, 2010, 05:43 AM
Of course the UK will get thought this....what is interesting here though, IMHO, is the accusation by Cameron of a cover-up about the UK's finances under Labour and that the boom under them was an illusion.

nick-taylor
June 8th, 2010, 09:53 AM
Of course the UK will get thought this....what is interesting here though, IMHO, is the accusation by Cameron of a cover-up about the UK's finances under Labour and that the boom under them was an illusion.A strong accusation, but something I can't see being proven as the system was already transparent due to the Freedom of Information Act (moreso now since you can now access Treasury records); unlike Greece or Italy where the figures were cooked and massaged to a shocking level for political or criminal means.

Fortunately in the UK, stronger-than-expected tax receipts have already gone a long way to cutting the deficit and the eventual bank share sales will also generate a tidy profit for the state. It'll be interesting to see how far Osbourne goes with the axe - as ultimately what is needed is less consultants and greater control of public wages and pensions not a willy nilly slash and burn approach.

Fabrizio
June 8th, 2010, 03:59 PM
^ If Cameron is making a false claim here "as the system was already transparent" that's quite a way to start a term.

---------

And "or Italy where the figures were cooked and massaged to a shocking level for political or criminal means". What figures are you refering to... and under which administration?

nick-taylor
June 9th, 2010, 06:19 AM
I think it has something to do with the cuts he could potentially end up making; what better way to avoid the flak than blame it on the previous administration for cooking the books. That way you capitalise at Labour's expense and if it gets better (as it has been for the past two quarters) you can capitalise even further.

Of course it could be a follow-up to the controversial joke that the outgoing Chief Secretary left on his desk for his successor :D

http://img.thesun.co.uk/multimedia/archive/01045/SNN1906GX1-682_1045976a.jpg


edit - I forgot to mention that the reason I mentioned Italy was that apparently cities/states had basically raised up silly amounts of debt and now some of it can't be accounted for.

Fabrizio
June 9th, 2010, 09:16 AM
In fact. Thanks for the edit: we can't be lumped together with Greece for false financial data. Nor is what Cameron suggesting similar to anything in Italy. Italy certainly has it's problems: but let's keep our facts straight.

212
June 9th, 2010, 09:23 AM
Of course the UK will get thought this....what is interesting here though, IMHO, is the accusation by Cameron of a cover-up about the UK's finances under Labour and that the boom under them was an illusion.

A politician exaggerating his opponents' sins, to advance his own policy interests? That'd never happen. :cool:

Anyway, in much of the industrialized world the economy has shrunk to where it was 5 or 10 years ago -- with deficits rising as tax receipts plummeted in the past couple years. That's why they call it the Great Recession. Britain is no different.

Fabrizio
June 9th, 2010, 09:29 AM
Exaggerating one's opponent's sins is one thing... but suggesting an actual cover-up? Perhaps I'm interpreting it incorrectly ...but that's pretty serious stuff.

212
June 9th, 2010, 09:39 AM
^ It's just politics. British government debt is a matter of public record and has been well tracked for ... centuries?
http://news.bbc.co.uk/2/hi/business/8415703.stm

Fabrizio
June 9th, 2010, 10:17 AM
But the statement is not about government debt:

"The Prime Minister seized on the £70 billion cost to the taxpayer of servicing these obligations in five years’ time, a “huge drain on our public finances” and a figure he accused Labour of keeping hidden from the public. The Institute for Fiscal Studies calculated in March that debt interest payments would rise to £73.8 billion in 2014/15."

212
June 9th, 2010, 06:32 PM
Paying $70 billion interest won't be a problem for an economy the size of Britain -- if its stimulus spending can avert deflation and depression.

Think of how we all handled our massive debts after the Great Depression and World War II: It's not that we really paid the debts down, but our economies grew so much that the debts became manageable. Inflation helped too, as it lessened the value of the debts a little every year.

MidtownGuy
June 17th, 2010, 10:20 PM
The Euro has been rising against the dollar and is now hovering around $1.24.

Who knows where this will be in August/September when I go over there.

The euro is still trash (http://money.cnn.com/2010/06/17/markets/thebuzz/)

NEW YORK (CNNMoney.com) -- It became fashionable over the past few weeks to proclaim that the euro was on a non-stop collision course with dollar parity. It was obvious that the euro would continue to sink like a stone.
But someone forgot to tell investors that. The currency markets have been as unpredictable as that tricky Adidas Jabulani soccer ball (http://money.cnn.com/video/technology/2010/03/22/f_tt_adidas_world_cup_soccer.fortune/) in the World Cup.



Since falling to a new four-year low of about $1.188 last week, the euro has since bounced back 4% and is now hovering around $1.24. A 4% move may not sound that dramatic but in the usually slow-moving world of currencies, that qualifies as a bona fide surge...

(http://money.cnn.com/2010/06/17/markets/thebuzz/)
read more (http://money.cnn.com/2010/06/17/markets/thebuzz/)

Fabrizio
June 28th, 2010, 05:05 AM
Greece... from today's NYTimes.

I could not care less about what goes on in Greece, but the fact that Europe has to now bail out these people is pathetic:

Austerity Could Realign Greek Politics
By JOANNA KAKISSIS
Published: June 27, 2010

ATHENS — Dora Bakoyannis knew that voting for the Socialist government’s austerity measures last month meant that she would get kicked out of the conservative party that her father, a former prime minister, helped shape. Mrs. Bakoyannis, a towering, charismatic former foreign minister and current Athens mayor, is now considering forming a new party. But she acknowledges that her lineage, as well as her years of political exposure, may hurt her at a time when Greeks have lost trust in their political institutions. “Believe me, there is no DNA which can save any politician, especially now,” Mrs. Bakoyannis, 56, said during a recent interview in her sunny office near the Acropolis. “At the end of the day, you are going to be judged alone.”

Many Greeks, worried about their country’s future, remain cautiously behind the reform efforts of Prime Minister George Papandreou, the scion of Greece’s most influential political family. But recent polls show that Greeks also believe corruption fostered by their politicians has led the country to economic ruin. As a result, they are questioning their most familiar political brands, said Kostas Ifantis, a political science professor at the University of Athens. “The country’s political families are easy targets,” he said. “They represent the state, which has been so dominant in Greece for so long, and which Greeks have grown used to being responsible for everything.”

In the last half-century, three main families have dominated Greek politics.The center-left Papandreous have produced three prime ministers: George; his powerful father, Andreas, who founded Pasok, the governing Socialist party; and Andreas’s centrist father, also named George. The previous prime minister, Kostas Karamanlis, is the nephew of Konstantinos Karamanlis, a four-time prime minister who founded the New Democracy Party and led Greece in 1974 after the fall of the seven-year military dictatorship.

Mrs. Bakoyannis and Kyriakos Mitsotakis, a member of Parliament with New Democracy, are the children of former Prime Minister Konstantinos Mitsotakis, who led New Democracy in the 1980s and early 1990s and who often sparred with Andreas Papandreou.“These personalities” — especially Andreas Papandreou and Konstantinos Karamanlis — “helped Greece’s development in recent decades as much as they obstructed it,” said Dimitris Sotiropoulos, a political scientist who has written on post-junta politics in Greece.These governments helped rebuild a traumatized country, but they also hardened the system to serve their own cadres and supporters, Mr. Sotiropoulos said.

Andreas Papandreou, for instance, transformed Greece’s political landscape in the 1980s by introducing social reforms for the poor. But many critics said he also squandered billions of European Economic Community loans on a bloated, inefficient public sector and political favors. Each major party gave perquisites, benefits and tax breaks to its supporting groups. The system also made it easy for many Greeks to evade taxes, further unbalancing the budget.“Greece started borrowing money to keep up, and the end of the story is now well-known,” Mr. Sotiropoulos said.

Over the years, leaders from each of the families have promised to end corruption. Kostas Karamanlis, a cigar-smoking lawyer with a doctorate in international affairs from Tufts University in the United States, led New Democracy to victory in 2004 on the promise that he would make government transparent, efficient and clean. Five years later, he left politics in disgrace, after his scandal-ridden party lost to Mr. Papandreou and Pasok, who have also promised to stamp out corruption. “Greeks really identified with Karamanlis, and when he disappointed them, they looked for someone else, and there was George” Papandreou, said Alexis Papachelas, managing director of Kathimerini, a prominent daily. “There was no one else.”

A survey this month by the pollster Public Issue showed that 40 percent believed that neither Mr. Papandreou nor the New Democracy leader, Antonis Samaras, was up to the job of dealing with Greece’s problems. Other surveys show that most Greeks do not trust the country’s two main political parties. At dozens of protests outside Parliament, thousands of angry Greeks gather to chant “kleftes,” or “thieves.” “I am not a political person, and I want to believe that the government and Mr. Papandreou will be different, but over the years I have lost faith,” said Grigoris Antoniadis, a 48-year-old aircraft mechanic who was at a recent protest against changes in the pension system. This sentiment, which pollsters say is widespread, shows just how fragile trust in politicians is right now, said Yiannis Tsarmougelis, an economics professor at the University of the Aegean who is a longtime Pasok activist. “If the government gets involved in one scandal — just one — I’m afraid our politicians won’t be able to walk out in public,” he said. “People can’t take any more corruption or broken promises. They are desperate for results. If you can’t produce them, your name and stature won’t matter.”

Though Mrs. Bakoyannis does not support Mr. Papandreou’s policies, she said she voted for the austerity measures on May 6 because she believed they were the best way to help Greece avoid bankruptcy. Mr. Samaras, to whom Mrs. Bakoyannis had lost a fight last autumn for leadership of the New Democracy Party, responded by expelling her. The austerity measures passed that day are the toughest the country has ever seen. They included drastic cuts in public spending, as well as tax increases, that are supposed to help Greece bring in about €30 billion, or $37 billion, in three years. By the fall, Greeks will start to feel the bite of those austerity measures. “Maybe there will be social unrest,” Mr. Tsarmougelis said. “People will want someone to give them a clear vision about why this is happening and why they have to pay the cost.”

If Mr. Papandreou’s government fails at that, Mrs. Bakoyannis hopes to offer an alternative. She says that if she does form a new party, which could happen this autumn after local elections, she wants to draw in Greek centrists who have historically felt like outsiders in Greek politics.
Mrs. Bakoyannis said she considered herself an outsider as well, despite her family history. Her father is a controversial figure in Greek history, and she rose in politics after her husband, Pavlos Bakoyannis, a journalist and New Democracy politician, was assassinated in 1989 by the terrorist group 17 November.Though she says she was a reluctant public figure at first, she soon became one of Greece’s most prominent politicians. At the height of her popularity a few years ago, commentators were speculating that she might one day become Greece’s first female prime minister.
But as Greece enters uncharted political waters, her fate — and the fate of many other name-brand politicians — is uncertain, experts say.

“The question now is, will we politicians, who are a product of the old way of thinking, get the message right and change ourselves?” Mrs. Bakoyannis said. “That’s the big question all of us are asking.”

http://www.nytimes.com/2010/06/28/world/europe/28iht-greece.html?pagewanted=1&ref=global-home

Fabrizio
June 29th, 2010, 10:16 AM
No wonder Greek tourism is taking a hit.....a shame they will not even be able to take advantage of the low Euro... who will want to travel there with the nightmare of strikes to interupt a vacation?:

Greeks Strike to Protest Austerity Plans
By NIKI KITSANTONIS AND MATTHEW SALTMARSH
Published: June 29, 2010

ATHENS — Public services in Greece ground to a halt, and transportation was disrupted on Tuesday as thousands of workers joined a general strike, the fifth this year, to protest deeply unpopular spending cuts that the debt-ridden government has promised its international creditors.

The country’s two main labor unions —referred to by their acronyms A.D.E.D.Y. and G.S.E.E, and representing some three million workers — vehemently oppose a draft law that aims to raise retirement ages, reduce monthly payments to pensioners and facilitate layoffs. The bill follows from the government’s decision to accept a one-year aid package in May of about $135 billion over three years from Greece’s European partners and the International Monetary Fund.

The strike action on Tuesday was timed to coincide with the start of a debate on the bill in Parliament. The debate is expected to continue until next week.

The call from unions was expected to draw thousands onto the streets of the capital. Early in the morning, hundreds of protesters carrying banners and bullhorns started congregating outside Parliament in central Athens to express their opposition to the austerity measures.

Tuesday’s strike shut down schools, courts and tax offices and left hospitals operating with only emergency staff. International train services were suspended, as were domestic flights, but most international flights were operating normally as Greek air traffic controllers stayed on the job to avoid further harm to the crucial tourism sector, already suffering from previous walkouts.

Public transport will be suspended for most of the day, with buses and the Athens subway running only a restricted service in the morning and evening to enable demonstrators to attend protest rallies.

All news broadcasts were canceled for the day, and newspapers were not printing issues for Wednesday as journalists walked off the job.

A government official from the Ministry of Citizens’ Protection who was not authorized to speak publicly described the situation in Athens around midday as “calm.” He said that about 5,000 demonstrators were heading toward Parliament and another 5,000 linked to the Communist Party were dispersing from the same area. Officials said the government would provide details of the numbers involved in the strikes and related demonstrations later in the day. There was no immediate estimate from unions of the numbers involved.

In May, demonstrations against austerity measures in Greece turned deadly when three people were killed in a fire caused by protesters at a bank building in Athens.

Greece is not the only European country experiencing industrial shutdowns. In Spain, striking workers protesting against a 5 percent pay cut, forced the closure of the subway in Madrid for the second day on Tuesday. Unions there are also angry about public sector pay cuts designed to reduce Spain’s budget deficit, which ballooned to 11.2 percent last year.

In Greece, there were reports Tuesday of some tension near Athens at Piraeus, the country’s main port, where an estimated 400 striking workers, many from the Communist Party-backed labor unions, tried to prevent tourists and locals from boarding ferries to the Aegean islands, even though a court had declared seamen’s participation in the strike illegal.

Although some ships did leave early in the morning, not all passengers managed to board. The government official said there had been no serious incidents at the port and that most passengers holding tickets had been informed of the strike in advance and had not turned up at the port.

A similar strike by two seamen’s unions last week — which was also declared illegal — left thousands of travelers stranded for a day in Piraeus.

The tourism industry is bracing for a difficult summer. It accounts for an estimated 15 percent of Greece’s gross national product, and there are fears that the upheaval will affect arrivals during the busiest months of July and August.

The proposed austerity steps have dominated discussions in Greek offices and cafes and have been the focus of heated discussions on television here. In one show late Monday, the head of the main civil servants’ union, Spyros Papaspyros, said Greeks would never accept the proposed changes. “They violate the law and the Constitution and affect 95 percent of Greeks — there is no way they will pass,” he said.

It is not only the Greek unions that oppose the changes. Local media have reported that several MPs from the ruling Socialist Party are also considering rebelling and voting against the bill at the end of next week. Prime Minister George Papandreou, who only has a 7-seat majority in Greece’s 300-seat Parliament, last week threatened to call general elections if his party’s lawmakers fail to back him.

“We cannot afford not to move forward,” he said on Friday.

Greece currently spends about 12 percent of its gross domestic product on pensions, a figure expected to double by 2050 if no changes are made.

http://www.nytimes.com/2010/06/30/world/europe/30greece.html?ref=global-home

Ninjahedge
June 29th, 2010, 11:03 AM
maybe they should write in terms that would ease the restrictions through time?

You raise retirement age, etc etc, in order to balance the budget, but what happens once the budget is balanced?

i have seen it many times where this has happened. A company will reduce the paid work week, but still expect you to work a full week "to help the company and your co-worker through difficult times". They suggest that if they stayed on the 40 that they would have to fire more people (probably true).

The problem being, hours take a while to get back, the workload is still the same, and SALARIES do not go back to what they would have been if there was no recession. (example, you take a pay cut from $40/hr to $30/hr. This stays that way for two years. The company says "Whoopie! We are out of the recession!!!", your pay goes "back" to $40/hr. What happened to the two years that you would have gotten nominal raises? Shouldn't you be at $44/hr? Is your experience worth less now because of 2 years of down time? Are the jobs paying less?)

I think that is what Greece should be more concerned with. NOT the cuts they need today, but the guarantee that they are TEMPORARY and cannot be extended like so many are in the US and other countries....

eddhead
June 29th, 2010, 11:48 AM
^^
It is doubtful that Greece will ever again be able to support its current (and very generous) social contract because of the age demographics of its population, and its affiliation with the Eurozone (and the Euro). In the past, countries facing budgetary problems of this magnitude could stimulate growth, promote exports and tourism etc.. by devaluing their currencies. This has the potential to be inflationary, but if done carefully is managable (see China who keeps its currency artificially low by buying dollars). Because Eurozone countries can not unilateraly devalue the Euro, their monetary policy toolbox is limited to the spend side.

The problems with the Greek economy are fundamental in nature. The fact is that Greece did not blow up overnight; it has been heading down the road of insolvency since at least 2002. But with the help of Goldman Sachs, it was able to mask its problems through " complex financial products with which governments could push part of their liabilities into the future," , i.e. cross-currency swaps tied to "fictitional exchange rates" http://www.spiegel.de/international/europe/0,1518,676634,00.html

BBMW
July 1st, 2010, 10:57 AM
^
We're starting to sound a lot like Greece. At least we've kept our own currency.

eddhead
July 1st, 2010, 12:18 PM
^^

Interesting article from Krugman, basically suggesting that the US has a vastly better economic outlook than Greece for the following reasons:

1. Although our deficits are similar as %ges to GDP, the US has an overall lower debt level than Greece
2. US cost of debt service is significantly lower than that of Greece
3. Unlike Greece, the US economy is in a Growth mode.

Of course it goes without saying that the US has its own currency and unlike Greece can resort to the printing press. Again, this can add inflationary pressure, but if done carefully can be managed.

http://www.nytimes.com/2010/05/14/opinion/14krugman.html

May 13, 2010

We’re Not Greece

By PAUL KRUGMAN (http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html?inline=nyt-per)

It’s an ill wind that blows nobody good, and the crisis in Greece is making some people — people who opposed health care reform and are itching for an excuse to dismantle Social Security — very, very happy. Everywhere you look there are editorials and commentaries, some posing as objective reporting, asserting that Greece today will be America tomorrow unless we abandon all that nonsense about taking care of those in need.

The truth, however, is that America isn’t Greece — and, in any case, the message from Greece isn’t what these people would have you believe.

So, how do America and Greece compare?

Both nations have lately been running large budget deficits, roughly comparable as a percentage of G.D.P. Markets, however, treat them very differently: The interest rate on Greek government bonds is more than twice the rate on U.S. bonds, because investors see a high risk that Greece will eventually default on its debt, while seeing virtually no risk that America will do the same. Why?

One answer is that we have a much lower level of debt — the amount we already owe, as opposed to new borrowing — relative to G.D.P. True, our debt should have been even lower. We’d be better positioned to deal with the current emergency if so much money hadn’t been squandered on tax cuts for the rich and an unfunded war. But we still entered the crisis in much better shape than the Greeks.

Even more important, however, is the fact that we have a clear path to economic recovery, while Greece doesn’t.

The U.S. economy has been growing since last summer, thanks to fiscal stimulus and expansionary policies by the Federal Reserve. I wish that growth were faster; still, it’s finally producing job gains — and it’s also showing up in revenues. Right now we’re on track to match Congressional Budget Office projections of a substantial rise in tax receipts. Put those projections together with the Obama administration’s policies, and they imply a sharp fall in the budget deficit over the next few years.
Greece, on the other hand, is caught in a trap. During the good years, when capital was flooding in, Greek costs and prices got far out of line with the rest of Europe. If Greece still had its own currency, it could restore competitiveness through devaluation. But since it doesn’t, and since leaving the euro is still considered unthinkable, Greece faces years of grinding deflation and low or zero economic growth. So the only way to reduce deficits is through savage budget cuts, and investors are skeptical about whether those cuts will actually happen.

It’s worth noting, by the way, that Britain — which is in worse fiscal shape than we are, but which, unlike Greece, hasn’t adopted the euro — remains able to borrow at fairly low interest rates. Having your own currency, it seems, makes a big difference.

In short, we’re not Greece. We may currently be running deficits of comparable size, but our economic position — and, as a result, our fiscal outlook — is vastly better.

That said, we do have a long-run budget problem. But what’s the root of that problem? “We demand more than we’re willing to pay for,” is the usual line. Yet that line is deeply misleading.

First of all, who is this “we” of whom people speak? Bear in mind that the drive to cut ta
xes largely benefited a small minority of Americans: 39 percent of the benefits of making the Bush tax cuts permanent would go to the richest 1 percent of the population.

And bear in mind, also, that taxes have lagged behind spending partly thanks to a deliberate political strategy, that of “starve the beast”: conservatives have deliberately deprived the government of revenue in an attempt to force the spending cuts they now insist are necessary.

Meanwhile, when you look under the hood of those troubling long-run budget projections, you discover that they’re not driven by some generalized problem of overspending. Instead, they largely reflect just one thing: the assumption that health care costs will rise in the future as they have in the past. This tells us that the key to our fiscal future is improving the efficiency of our health care system — which is, you may recall, something the Obama administration has been trying to do, even as many of the same people now warning about the evils of deficits cried “Death panels!”

So here’s the reality: America’s fiscal outlook over the next few years isn’t bad. We do have a serious long-run budget problem, which will have to be resolved with a combination of health care reform and other measures, probably including a moderate rise in taxes. But we should ignore those who pretend to be concerned with fiscal responsibility, but whose real goal is to dismantle the welfare state — and are trying to use crises elsewhere to frighten us into giving them what they want.




http://up.nytimes.com/?d=0/9/&t=&s=2&ui=31080447&r=http%3a%2f%2fwww%2enytimes%2ecom%2f2010%2f05%2f1 4%2fopinion%2f14krugman%2ehtml&u=www%2enytimes%2ecom%2f2010%2f05%2f14%2fopinion%2 f14krugman%2ehtml%3fpagewanted%3dprint http://wt.o.nytimes.com/dcsym57yw10000s1s8g0boozt_9t1x/njs.gif?dcsuri=/nojavascript&WT.js=No&WT.tv=1.0.7
http://www.nytimes.com/adx/bin/clientside/355ef4c4Q2FvX@Q26LQ5EsL9Q2A9aL1VVkLX9asQ2AV http://up.nytimes.com/?d=0/9/&t=&s=2&ui=31080447&r=http%3a%2f%2fwww%2enytimes%2ecom%2f2010%2f05%2f1 4%2fopinion%2f14krugman%2ehtml&u=www%2enytimes%2ecom%2f2010%2f05%2f14%2fopinion%2 f14krugman%2ehtml%3fpagewanted%3dprint http://wt.o.nytimes.com/dcsym57yw10000s1s8g0boozt_9t1x/njs.gif?dcsuri=/nojavascript&WT.js=No&WT.tv=1.0.7

212
July 2nd, 2010, 02:40 AM
^ Great points, eddhead.

Krugman's economic analysis has been consistently ahead of the curve:

- He warned of a housing bubble in 2002 (lo and behold, housing prices are now at 2003 levels)
- He predicted that Obama would need to adopt a Hillary-style mandate for health reform to work
- He predicted that the 2009 stimulus was too small to raise employment to acceptable levels

Right on all counts. And then there's his Nobel Prize. I've come to trust his judgment on economics more than anyone else's. And he's an exceptionally good writer.