Category Archives: Greece

EU’s Response to Crisis Will ‘Convince People,’ Van Rompuy Says

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See below, seems 75% still support the euro vs trusting their own leaders with their own currency.

Also, unfortunately, the non MMT world pretty much still fails to grasp that mass unemployment is a macro problem and a manifestation of unspent income. That the only way the output gap gets filled is by some sector spending more than its income; and that the issuer of the currency is the only entity that isn’t inherently revenue constrained when it spends.

EU’s Response to Crisis Will ‘Convince People,’ Van Rompuy Says

May 9 (Bloomberg) — European Union President Herman Van Rompuy said the EU’s response to the sovereign-debt crisis will “convince people” of the value of being in the 27-nation bloc.

“We will convince people of the sense and the meaning of EU membership by results,” Van Rompuy said in a question-and- answer session posted on the Euronews website today. “That’s why we have to stabilize the euro zone and that’s why we have to increase economic growth and create jobs.”

“There is still a huge majority in most of the countries for membership of the European Union and the euro zone,” Van Rompuy said. “Even in Greece, I saw an opinion poll just before the election which said that 75 percent of people don’t want to leave the euro zone.”

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Norway protesting PSI losses

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>   
>   (email exchange)
>   
>   On Tue, May 8, 2012 at 10:21 AM, John wrote:
>   
>   Norway’s oil sovereign wealth fund has sold all its holdings of Irish and Portuguese
>   government debt and reduced its ownership of Spanish and Italian bonds as part of a
>   continuing protest over its forced participation in Greece’s debt restructuring. The
>   fund also reduced its Italian sovereign debt position from about EUR 8bn in the middle
>   of 2011 to about EUR 3.5bn at the end of March this year.
>   

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PSI/Bond tax- the 800 lb gorilla?

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Greece did it, and sanctioned by the EU. They cut their deficit by 100 billion euro by decree, by what was called ‘private sector involvement’ which was, functionally, a bond tax.

Instead of another 100 billion of public sector service cuts and tax hikes on the population, they just taxed the holders of Greek bonds. And ostensibly nothing ‘bad’ happened, apart from a few banks changing a few numbers down on their books. Nor did the euro go down or inflation go up or anything else ‘monetary’ go wrong.

Pretty tempting for a new socialist govt in any euro member nation?
No more austerity, just a bond tax instead?
If Greece doesn’t have to pay, why do we?

But, so far, not a word from any of them.
The silence is deafening.
The risk very real.

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Reinharts, Rogoff See Huge Output Losses From High Debt

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A black mark on Morgan Stanley

Reinharts, Rogoff See Huge Output Losses From High Debt

By Rich Miller

April 30 (Bloomberg) — The U.S. and other developed economies with high public debt potentially face “massive” losses of output lasting more than a decade, even if their interest rates remain low, according to new research by economists Carmen and Vincent Reinhart and Kenneth Rogoff.

In a paper published today on the National Bureau of Economic Research’s website, they found that countries with debts exceeding 90 percent of the economy historically have experienced subpar economic growth for more than 20 years. That has left output at the end of the period a quarter below where it would have been otherwise.

“The long-term risks of high debt are real,” they wrote. “Growth effects are significant” even when debtor nations are able to borrow “at relatively low real interest rates.”

In spite of those dangers, the economists said they are not advocating rapid reductions in government debt at times of “extremely weak growth and high unemployment.”

Carmen Reinhart is a senior fellow at the Peterson Institute for International Economics in Washington, while her husband, Vincent, works as chief U.S. economist for Morgan Stanley in New York. Rogoff is a professor at Harvard University in Cambridge, Mass., and a former chief economist at the Washington-based International Monetary Fund.

Their paper looked at 26 separate episodes in 22 countries since 1800 in which central government debt exceeded 90 percent of gross domestic product for at least five years. Advanced economies with such big liabilities grew on average 2.3 percent a year, compared with 3.5 percent in the lower debt period, they said. The high-debt period on average lasted 23 years, according to the study.

U.S. Debt

Gross federal U.S. debt has exceeded 90 percent of GDP for the last two years and is projected to remain above that level at least through 2017, according to the White House’s Office of Management and Budget.

Publicly-held debt, which excludes debt held by the Social Security Trust Fund and other government agencies, was 68 percent of GDP on Sept. 30, 2011, the OMB data show.

The lower level of publicly held debt should not be a source of comfort to the U.S. and other heavily-indebted nations because such trust funds generally are “woefully underfunded,” the Reinharts and Rogoff argued in their paper.

They also cautioned the U.S. and other developed nations against taking solace from low levels of interest rates on their debt. The yield on the 10-year U.S. Treasury note stood at 1.92 percent at 3:15 p.m.

‘Warning Signal’

“Contrary to popular perception, we find that in 11 of the 26 debt overhang cases, real interest rates were either lower or about the same as during the lower debt/GDP years,” the economists wrote. “Those waiting for financial markets to send a warning signal through higher interest rates that government policy will be detrimental to economic performance may be waiting a long time.”

Greece and Italy were the two countries in the study that experienced the most instances in which their debt exceeded 90 percent of GDP.

The economists warned that nations with excessive government liabilities now may even fare worse than history suggests because their private and foreign debts also are large.

“The fact many countries are facing ‘quadruple debt overhang problems’ — public, private, external and pension — suggests the problem could be worse than in the past,” they said.

Carmen Reinhart and Rogoff are co-authors of the book “This Time is Different: Eight Centuries of Financial Folly.” Carmen’s husband, Vincent, is a former director of the monetary affairs division at the Federal Reserve in Washington.

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Something to note…

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Spotted by Sean Keane

It was also interesting to note an easily overlooked article in Greek online newspaper Kathimerini saying that the European Commission is pressuring the European Investment Bank to withdraw a clause that it recently inserted into its new loan contracts that were signed with a number of Greek companies. The new clauses allow for the repayment of debt in Greek Drachma instead of Euro, should the Greeks decide to leave the EU at some point in the future. Clearly the EC is displeased at one of the foremost European lending institutions legally embedding the possibility of something happening which the Commissioners all insist is impossible. Commissioner Olli Rehn reportedly called the clauses “unfortunate and incomprehensible2”. A cynic might note that the EIB has taken an appropriately commercial and realistic approach to the loans, free of the politics that surround the EC.

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EU Daily | Monti under fire as crisis deepens

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It’s now not over until the ECB writes the check, the whole check, and nothing but the check.

Monti under fire as crisis deepens

(FT) — “We are not standing down,” said Susanna Camusso, leader of the leftwing CGIL. Workers are to down tools next Friday over pension reforms passed in December and will strike again when parliament debates Mario Monti’s controversial labour reform legislation. Rather than feeling mollified by concessions made by Mr Monti over changes to rules on the firing of workers for economic reasons, Ms Camusso made it clear the union felt emboldened by its mobilisation. “The text is very bad,” Emma Marcegaglia, head of Confindustria, told the Financial Times, saying it would be better to scrap the entire labour reform legislation if it were not amended in parliament. A senate committee will start examining the bill on Wednesday.

Shaken Spain seeks to restore confidence

(FT) — Luis de Guindos, the economy minister, has said in interviews with local and foreign media that Spain does not need a bailout of the kind provided to Greece, Ireland and Portugal by the European Union and the International Monetary Fund. Mr de Guindos told Germany’s Frankfurter Allgemeine Zeitung that the government’s next step would be a reform of the health and education systems “that is, a rationalisation of spending in the autonomous regions”. Spain needs to cut more than 3 percentage points of gross domestic product from its public sector deficit, reducing it from 8.5 per cent of GDP in 2011 to 5.3 per cent this year in line with EU targets. In 2013, the deficit is supposed to fall further to 3 per cent of GDP.

Spain Economy to Start Growing From 2013, de Guindos Tells Ser

(Bloomberg) — Spain’s economy will start growing next year, Economy Minister Luis de Guindos says in interview with Cadena Ser radio station today.

Labor situation to stabilize from final quarter of this year, de Guindos says.

Italy Fights Spain for Investors as ECB Boost Fades: Euro Credit

(Bloomberg) — Competition between Italy and Spain for international investors’ funds will heat up this quarter as domestic buying stoked by the European Central Bank fades.

Italian and Spanish bonds slumped last week after demand dropped at a Spanish bond sale and Prime Minister Mariano Rajoy said his country is in “extreme difficulty.” The decline reversed a first-quarter rally sparked by more than 1 trillion euros ($1.3 trillion) of ECB loans to the region’s banks via its longer-term refinancing operation. Spain’s 10-year yield spread to German bunds widened to the most in four months, while Italy’s reached a six-week high.

“Spain and Italy are coming back down to earth after an incredible first quarter,” said Luca Jellinek, head of European interest-rate strategy at Credit Agricole SA in London. “The LTRO bought some time, but not a massive amount of time. Now the second quarter will be harder than the first unless policy moves convince foreign investors to come back in.”

Italian 10-year bonds fell for a fourth week, with the yield advancing 40 basis points to 5.51 percent. The yield difference over bunds widened to 378 basis points, compared with an average of 381 basis points in the first quarter. Spain’s 10- year yield spread to Germany reached 410 basis points last week after averaging 333 basis points in the first three months.

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Global themes

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  • Austerity everywhere keeps domestic demand in check and export channels muted
  • Non govt credit expansion pretty much stone cold dead in the US and Europe
  • Rising oil energy prices subduing global aggregate demand
  • US federal deficit just about enough to muddle through with modest GDP growth
  • Rest of world public deficits also insufficient to close output gaps, including China which has calmed down considerably
  • Zero rate policies/QE/etc. in the US, Japan, and Europe doing their thing to keep aggregate demand down and inflation low as monetary authorities continue to get that causation backwards
  • All good for stocks and shareholders, not good for most people trying to work for a living
  • Europe still in slow motion train wreck mode, with psi bond tax risk keeping investors at bay and ECB waiting for things to get bad enough before intervening

So still looking to me like a case of

‘Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan’

The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.

But this time we’re being more careful of ‘bubbles’ (just like Japan has done for the last two decades). So I don’t see much hope there.

Still watching for the euro bond tax idea to surface, which I see as the immediate possibility of systemic risk, but no real sign yet.

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BINI SMAGHI SAYS EU MUST ACT TO SHOW GREEK PSI AN EXCEPTION

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‘Must’ is a good choice of words because if they fail the consequences are financially catastrophic.

*BINI SMAGHI: EU MUST RECOGNIZE PORTUGAL MAY NEED MORE AID

*BINI SMAGHI SAYS EU MUST ACT TO SHOW GREEK PSI AN EXCEPTION


*FORMER ECB OFFICIAL BINI SMAGHI COMMENTS IN FT OPINION ARTICLE

*BINI SMAGHI SAYS PORTUGAL MAY NEED EU100 BILLION *BINI SMAGHI SAYS IRELAND MAY NEED ADDITIONAL EU80 BILLION

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Market Should Be Assured by Debt Deal: Greek Minister

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Yes, assured that taxing bond holders works to lower deficits. That is, their public debt is sustainable after the PSI bond tax.

If anything, seems to me this kind of talk serves to keep investors away from any euro zone member debt.

Market Should Be Assured by Debt Deal: Greek Minister

By Reported by Silvia Wadhwa, Written by Catherine Boyle

March 12 (CNBC) — Greece has been tossed on the turbulent sea of global markets for almost two years now – but the bond swap deal secured on Friday should reassure markets about the country’s future, Greek Finance Minister and possible future prime minister Evangelos Venizelos told CNBC.

“Now we have a sustainable debt for a sustainable country,” he said. “And now we can persuade the market because we have a new, very important and very concrete argument: the sustainability of the public debt after the PSI (the private sector investor deal).”

“We have a very clear political declaration and position from the part of our institutional partners. We have a very clear statement from the part of the Eurogroup, but also of the Euro Summit. We have the support of the so-called “Official Sector” until the return of Greece in the market,” he added.

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